Hadinoto Enterprises Inc.(HEI) purchased equipment

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Hadinoto Enterprises Inc.(HEI) purchased equipment for $400,00 on January 1, 20x5.The equipment has a 4 year life and no salvage value.HEI estimates that the equipment will be used to produce the following units of inventory:

To maximize profit margin for 20x5, the depreciation method HEI will use is :
A.Straight-line
B.Units of production.
C.Double-declining balance.

难度:⭐⭐⭐

题库:财会类考试,特许金融分析师(C,CFA一级

标签:year,life,and

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2024-10-11 06:48:05

Ans:B.

The unit-of-production method will result in the lowest depreciation expense and therefore the highest profit margin in 20x5.20x5 depreciation is calculated as follows using the three methods:

Straight-line = $400,000/4years=$100,000

Double-declining balance = $400,000*(1/4)*2=$200,000

Units of production:

Depreciation rate = $400,000/1,000,000 units = $0.40 / unit

20x9 depreciation = $0.40/ unit * 100,000 units = $40,000

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