controller of a German machine tool company believed that historical cost depreciation was inadequate for assigning
ACG441-03: Managerial Accounting Instructor: Dennis McGuckian The controller of a German machine tool company believed that historical cost depreciation was inadequate for assigning the cost of using expensive machinery to individual parts and products. Each year he estimated the replacement cost of each machine and calculated depreciation, based on the machines replacement cost, to be included in the machine-hour rate used to assign machine expenses to the parts produced on that machine. Additionally, the controller included an interest charge, based on 50% of the machines replacement value, into the machine-hour rate. ... As a consequence of these two decisions (changing replacement cost rather than historical cost and imputing a capital charge for the use of capital equipment), the product cost figures used internally by company managers were inconsistent with the numbers that were needed for inventory valuation for financial and tax reporting.