What is the depreciation using straight line deprectiation over 12 years, what is the revenue earned each year, and what are total taxes with a maginal rate of 40%? Price per bus $225,500 Units sold per year 7,750 Labor cost per bus $52,000 Components & Parts $94,000 Selling General & Administrative $250,000,000 per year NOTE: Average warranty cost per year per bus for the first five years is $1,100. The present value of this cost will be used as a cost figure for each bus. Afterwards, the bus operator will become responsible the repairs on the buses. PV of bus warranty = 4,776 NOTE: There is a marginal tax rate of 40% The buses can be produced for twelve years. Afterwards, the designs become obsolete. Engine Detroit engines Price per engine, including installation $20,000 Average annual warranty cost per year Present Value = $6,512 $1,000 The engine will be installed in every bus and will become a cost figure for each bus.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
What is the
|
Price per bus |
$225,500 |
|
|
|
Units sold per year |
7,750 |
|
|
|
Labor cost per bus |
$52,000 |
|
|
|
Components & Parts |
$94,000 |
|
|
|
Selling General & Administrative |
$250,000,000 per year |
|
|
|
NOTE: Average warranty cost per year per bus for the first five years is $1,100. The PV of bus warranty = 4,776
NOTE: There is a marginal tax rate of 40% |
|||
|
The buses can be produced for twelve years. Afterwards, the designs become obsolete. |
|
Engine |
Detroit engines |
|
|
Price per engine, including installation |
$20,000 |
|
|
Average annual warranty cost per year Present Value = $6,512 |
$1,000 |
|
|
The engine will be installed in every bus and will become a cost figure for each bus. |
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 3 images
