Problem:
Your client, Burley Designs, recently acquired a new machine to build bicycle wheels for the tandems, recumbents and trailers they build.
Total machine cost after installation, calibrations and other related capitalized costs was $18,250. The machine has an expected life of 7 years with a residual value of $2000. The machine is capable of producing 20,000 wheels per year. Burley estimates that they will only ask the machine to produce as follows:
|
Year
|
Anticipated Product Schedule Af?cAc‚¬" Wheels
|
|
1
|
13,500
|
|
2
|
14,250
|
|
3
|
15,000
|
|
4
|
16,200
|
|
5
|
17,000
|
|
6
|
18,000
|
|
7
|
19,100
|
Required:
1. Prepare and present depreciation schedules for the machine. Use straight line, units of production and the double declining methods of depreciation.
2. For each method make a brief explanation of how the schedules were determined.
3. Discuss an advantage and disadvantage of each method.
4. Recommend a particular depreciation method for Burley to use and support your recommendation with reasoning.
5. Remember that your audience is professional, but not accountants.