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Montano1993 [528]
3 years ago
15

Claxton Company purchased a van on January​ 1, 2018, for​ $820,000. The estimated life of the van was five​ years, and its estim

ated residual value was​ $103,000. Claxton uses the​ straight-line method of depreciation. At the beginning of​ 2020, the company revised the total estimated life of the asset from five years to four years. The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense for 2020.
Business
1 answer:
vaieri [72.5K]3 years ago
5 0

Answer:

The depreciation expense for 2020 is $215,100

Explanation:

Given

Claxton Company purchased a van on January​ 1, 2018, for​ $820,000.

Useful life = 5 years

Residual value = $103,000

Annual depreciation = ($820,000- $103,000)/5

                                 = $717,000/5

                                = $143,400

At the beginning of​ 2020, the asset would have been depreciated for 2 years (2018 and 2019)

Net book value = $820,000 - 2($143,400)

                          = $533,200

Since the residual value remains the same after a revision of the estimated useful life from 5 years to 4 years

The asset would only have 2 years left for depreciation.

Annual depreciation = ($533,200 - $103,000)/2

                                  = $430,200/2

                                  = $215,100

         

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Answer:

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1. Overhead rate using the traditional (plantwide) approach is:

= $1.84

2. The overhead rates using activity-based costing approach are:

Machining = $72.49

Machine setup = $211.69

3. The difference in allocation between the two approaches:

Differences:

ABC approach        $121,808   $178,188   $299,996

Using plantwide     $110,400  $189,520  $299,920

Differences              $11,408    -$11,332             $76

Explanation:

a) Data and Calculations:

Total estimated overhead costs = $300,000

Machining activity = $195,000

Machine setup activity = $105,000

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Direct labor costs $60,000 $103,000  $163,000

Machine hours           1,400        1,290       2,690

Setup hours                    96          400          496

Overhead rate based on direct labor costs = $1.84 ($300,000/163,000)

Overhead rates using activity-based costing approach:

Machining = $72.49 ($195,000/2,690)

Machine setup = $211.69 ($105,000/496)

Allocation of overhead costs:

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Using plantwide       $110,400  $189,520  $299,920

Using ABC:

Machining                $101,486    $93,512    $194,998

Machine setup           20,322      84,676      104,998

Total costs               $121,808   $178,188   $299,996

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Using plantwide     $110,400  $189,520  $299,920

Differences               $11,408    -$11,332            $76

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