Hershon Inc Component P922 Is Expected to Have a Useful Life of 2

question 180

Multiple Choice

Hershon Inc. acquires a new machine. It is comprised of 2 different identifiable components the P922 and the B14. Each of these components is expected to be overhauled at different intervals. The acquisition cost of the entire machine is as follows:

$\begin{array}{|l|r|}\hline \text { Component P922: } & \$ 198,000 \\\hline \text { Component R14: } & \$ 240,000 \\\hline \text { Total } & \$ 438,000 \\\hline\end{array}$

Component P922 is expected to have a useful life of five years and a residual value of $\$ 20,000$ before the first major overhaul is required. Component R14 is expected to have a useful life of seven years and a residual value of $\$ 15,000$ before its first overhaul.
-Assuming straight-line depreciation, what will be the net book value of component P922 at the end of year five?

• A) $18,000
• B) $20,000
• C) $15,000
• D) $22,000

---

Definitions:

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or services, calculated in advance based on estimated costs and activity levels.

Direct Labor-hour

An alternative term for direct labor-hours indicating the individual hours of labor directly involved in the production process, crucial for cost calculation.

Predetermined Manufacturing Overhead

Predetermined Manufacturing Overhead is an estimated amount of manufacturing overhead costs that is assigned to each unit of product based on a predetermined rate, before actual costs are known.

Job F

Based on context, this could refer to a specific job identifier in job costing, tracking costs and revenue associated with a particular job.