Red Corp Constructed a Machine at a Total Cost of $70

question 131

Multiple Choice

Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $4 million. At the beginning of 2018, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2018?

• A) $4.80 million.
• B) $5.40 million.
• C) $6.60 million.
• D) $11.55 million.

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Definitions:

Activity-Based Costing

A costing method that assigns costs to products and services based on the activities they require.

Direct Labor-Hours

Cumulative working time of employees who are directly engaged in producing goods.

Direct Materials Cost

The cost of raw materials that can be directly traced to the production of goods.

Activity-Based Costing

An accounting method that assigns costs to products and services based on the activities required to produce them.