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Paper Printing Company purchased a copy machine for $65,000onJanuary​ 1, 2010. The copy machine had an estimated useful life offive years or 1,000,000 copies. Paper Printing estimated the copy​machine's salvage value to be $5,000. The company made 250,000copies in 2010 and 190,000 copies in 2011.Requirements

1. Calculate the depreciation expense for eachyear using the straight line method.

-

=

/

=

Depreciation expense

-

=

/

=

Now we can determine the depreciation per unit. ​(Round to twodecimal​ places.)

/

=

Cost per copy

/

=

Now that the cost per unit has been established we can nowdepreciate the copy machine based on the number of copiesproduced.

Year

x

=

Depreciation expense

2010

x

=

2011

x

=

2. Which method portrays the actual use of thisasset more​ accurately? Explain your answer. When using​straight-line depreciation the depreciation expense

▼

is higher at the end of life of the asset is lower at the end ofthe life of the asset remains the same every year . ​Straight-linedepreciation assumes that the asset will be used

▼

equally less more every year. Activity depreciation is alsoknown as

▼

units of production straight line double declining balance . Theactivity method depends on the

▼

actual estimated number of units produced.

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Related questions

Paper Printing Company purchased a copy machine for

$ 65 comma 000$65,000

on January​ 1, 2010. The copy machine had an estimated usefullife of five years or

1 comma 000 comma 0001,000,000

copies. Paper Printing estimated the copy​ machine's salvagevalue to be

$ 5 comma 000$5,000.

The company made  

250 comma 000250,000

copies in 2010 and

190 comma 000190,000

copies in 2011.Requirements

LOADING...

1. Calculate the depreciation expense for eachyear using the straight line method.

-

=

/

=

Depreciation expense

-

=

/

=

Now we can determine the depreciation per unit. ​(Round to twodecimal​ places.)

/

=

Cost per copy

/

=

Now that the cost per unit has been established we can nowdepreciate the copy machine based on the number of copiesproduced.

Year

x

=

Depreciation expense

2010

x

=

2011

x

=

2. Which method portrays the actual use of thisasset more​ accurately? Explain your answer.

When using​ straight-line depreciation the depreciationexpense

▼

is higher at the end of life of the asset

is lower at the end of the life of the asset

remains the same every year

. ​Straight-line depreciation assumes that the asset will beused

▼

equally

less

more

every year. Activity depreciation is also known as

▼

straight line

units of production

double declining balance

. The activity method depends on the

▼

actual

estimated

number of units produced.

P10-3A

On January 1, 2008, Pele Company purchased the following twomachines for use in its production process.
Machine A The cash price of this machine was $38,000. Relatedexpenditures included: sales tax $1,700, shipping costs $150,insurance during shipping $80, installation and testing costs $70,and $100 of oil and lubricants to be used with the machinery duringits first year of operations. Pele estimates that the useful lifeof the machine is 5 years with a $5,000 salvage value remaining atthe end of that time period. Assume that the straight-line methodof depreciation is used.
Machine B The recorded cost of this machine was $160,000. Peleestimates that the useful life of the machine is 4 years with a$10,000 salvage value remaining at the end of that timeperiod.






Correct.

Prepare the following for Machine A.
1. The journal entry to record its purchase on January 1,2008.
2. The journal entry to record annual depreciation at December 31,2008.
Account / Description Debit Credit
1. Machinery
$ 40000

Cash
$ 40000

2. Depreciation expense
$ 7000

Accumulated depreciation
$ 7000





This part is not coming out


Incorrect.





Calculate the amount of depreciation expense that should record formachine B each year of its useful life under the followingassumptions. (Round depreciation cost per unit to 2 decimal places.Round final answers to 0 decimal places, e.g. 125.)

Pele uses the straight-line method of depreciation.
Pele uses the declining-balance method. The rate used is twice thestraight-line rate.
Pele uses the units-of-activity method and estimates that theuseful life of the machine is 125,000 units. Actual usage is asfollows: 2008, 45,000 units; 2009, 35,000 units; 2010, 25,000units; 2011, 20,000 units.


Year 1
Year 2
Year 3
Year 4

1.
Straight-line
$
$
$
$

2.
Declining-balance
$
$
$
$

3.
Units-of-activity
$
$
$
$




Year 4 1. 4000

2. 24000


3 .2400













Incorrect.





Which method used to calculate depreciation on machine B reportsthe highest amount of depreciation expense in year 1 (2008)?declining-balance method This is correct

The highest amount in year 4 (2011)? units-of-activity methodallmethods are the samedeclining-balance methodstraight-linemethod

The highest total amount over the 4-year period? declining-balancemethodunits-of-activity methodall methods are the samestraight-linemethod



















Business Description:

Your project group will assume the role of young entrepreneursto start a small company. Your company will rent a retail cartinside the Stonebridge Mall to buy plain T-shirts and imprint themwith one of the twelve beautiful pictures exclusively designed foryour company by a famous artist who is a friend of yours. He hasagreed to design twelve super attractive T-shirt pictures for youeach year at a special discount. Your target customers areteenagers and young adults who have your kind of good taste. Yourbusiness is scheduled to launch on January 1, 2014.

Cost information:

1) Stonebridge charges you $2,500 rent per month, which includesutilities, telephone, cleaning, and maintenance. You estimated that90% of the rent was related to factory operations and 10% wasrelated to selling and administrative activities.

2) You will order white, cotton t-shirts from a T-shirtwholesaler. Each T-shirt will cost (including taxes, shipping, andhandling) $3.75 to purchase.

3) To store T-shirts that were bought, but not yet imprinted,you will rent a storage unit. The storage unit costs you $125 permonth.

4) You agreed to pay your artist friend a $10,000 annualcontract fee plus a $300 design fee for each of the 12 T-shirtpictures designed. This same term is renewable for the next 3years. Each T-shirt picture will only be used for one year.Therefore, in the second year, 12 new pictures will be designed at$300 each and another $10,000 annual contract fee will becharged.

5) You will buy several items before that start of yourbusiness:

a) A computer and a printer: You will pay $6,000 (includingtaxes, shipping and handling) to buy a computer and a printer. Youexpect both to last about 3 years without salvage value. You willuse the straight-line method for depreciation. You estimate thatabout 90% of the computer and printer will be used for factoryoperations and 10% will be for selling and administrativeactivities.

b) A heat press machine: You will pay $4,500 (including taxes,shipping and handling) for a heat press machine. The machine isused for imprinting t-shirts only and is expected to last 3 yearswithout salvage value.

c) Transfer paper: Each case of transfer paper costs $400 andcontains 1,000 sheets of 8.5×11 transfer paper. You expect to useone transfer paper to print one T-shirt.

d) Ink-jet cartridges: On average, each cartridge costs $50 andcan make 500 prints. Each T-shirt requires one print. You also needto print flyers, etc. for selling and administrative purposes. Forthis non-manufacturing printing, you will print about one page forevery 5 T-shirts sold.

e) Laser paper: You will buy several reams of laser paper toprint promotion flyers, etc. Each ream costs $20 and contains 200sheets of 8.5×11 laser paper.

6) Wrapping paper and box: Each T-shirt costs about $0.20 towrap and box. Wrapping and boxing are not considered asmanufacturing.

7) You will hire three fellow students as part-time workers.They not only help you operate the machine, but also help fold,wrap and box T-shirts. Sometimes, three of them work at the sametime. But, sometimes they don‟t because of their different classschedules. On average, printing 10 shirts will take one labor hour.Folding and packaging 20 shirts also will take about one laborhour. You will pay each of your workers $8 per hour. Folding andwrapping are not considered as manufacturing.

8) You (the owners) do all the selling and administrative workby yourselves. You will pay yourselves a total of $12,000 per year(to be divided among all owners).

9) To protect your business from legal obligation, you willpurchase a liability insurance that will cost you $3,600 peryear.

10) You will hold four end-of-quarter parties to promote salesof your t-shirts. Each party costs you about $1,000.

Section Two Requirements:

Now you have developed your cost estimates, let‟s do someevaluations on this proposed business.

1. Continue to assume that 7,800 t-shirts will be made and soldin the first year. What is your product cost per unit underabsorption costing? What is your product cost per unit undervariable costing?

2. Based on the estimated sales level of 7,800 t-shirts for thefirst year, prepare your company‟s (forecasted) income statementfor the year ended on 12/31/2014 using both (a) the traditionalformat based on the absorption costing and (b) the contributionformat based on the variable costing.

3. Calculate contribution margin per T-shirt and contributionmargin ratio.

4. Calculate how many T-shirts you need to sell in order tobreak-even. Calculate how much sales in dollars you need to make inorder to break-even. (Use break-even formulas.)

5. Calculate how many T-shirts you need to sell in order to make$10,000 target profit for the year.

6. Continue to assume that 7,800 T-shirts will be made and soldduring the first year. Calculate your (a) margin of safety and (b)degree of operating leverage (DOL) for your business. What do thesefigures tell you about how risky your business is?

7. If sales could increase by 1,560 shirts (i.e. a 20%increase), by how much in dollars would net operating incomeincrease? By what percentage would net operating income increase?(Use the “quick” way, i.e. contribution margin concept and DOL, youhave learned in class to answer these questions. Do not recalculatenet operating income.)

8. Prepare a contribution format income statement assuming asales increase by 20% to 9,360 shirts. Compare your new netoperating income with your answer in Question “2” and provemathematically that your answers to the two questions in Question“7” are correct.

9. Ignore Questions “7” and “8”. If the cost per plain t-shirtis expected to increase by 20% and sales (in number of T-shirts)are expected to be 5% less, how much is your projected netoperating income (or loss)?

10. Continue Question „9”. If the only expense you can cut isthe salary paid to yourselves, how much salary should you cut inorder to break even?

11. Ignore Question “9” and “10”. Assume that you have produced7,800 t-shirts, but the actual sales for the first year turn out tobe 7,000 T-shirts instead of 7,800. I.e. you will have 800 T-shirtsleft at the end of the first year. Prepare (a) a traditional formatincome statement and (b) a contribution format income statement.Are the two net operating income figures the same? Why or whynot?

12. Continue “11”. At what amount would inventory be reported inthe balance sheet of 12/31/2014 under (a) the absorption costingand (b) variable costing? Are the two ending inventory figures thesame or different? Why?

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