“CA11-3 (DepreciationStrike, Units-of-Production, Obsolescence) Presented below and on page 583 are three different and unrelated situations…

“CA11-3 (Depreciation—Strike, Units-of-Production, Obsolescence) Presented below and on page 583 are three different and unrelated situations involving depreciation accounting. Answer the question(s) at the end of each situation. Situation I Recently, Broderick Company experienced a strike that affected a number of its operating plants. The controller of this company indicated that it was not appropriate to report depreciation expense during this period because the equipment did not depreciate and an improper matching of costs and revenues would result. She based her position on the following points.1. It is inappropriate to charge the period with costs for which there are no related revenues arising from production.2. The basic factor of depreciation in this instance is wear and tear, and because equipment was idle, no wear and tear occurred.Instructions Comment on the appropriateness of the controller’s comments. Situation II Etheridge Company manufactures electrical appliances, most of which are used in homes. Company engineers have designed a new type of blender which, through the use of a few attachments, will perform more functions than any blender currently on the market. Demand for the new blender can be projected with reasonable probability. In order to make the blenders, Etheridge needs a specialized machine that is not available from outside sources. It has been decided to make such a machine in Etheridge’s own plant. Instructions (a) Discuss the effect of projected demand in units for the new blenders (which may be steady, decreasing, or increasing) on the determination of a depreciation method for the machine.

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