Speedy Taxi Service uses the units-of-activity method in computing depreciation

Question

Speedy Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 151,350 miles. Taxi no. 10 cost $33,830 and is expected to have a salvage value of $430. Taxi no. 10 is driven 30,020 miles in year 1 and 20,630 miles in year 2. Compute the depreciation for each year. (Round depreciation cost per unit to 2 decimal places, e.g. 10.50. Use rounded numbers for future calculations. Round final answers to 0 decimal places, e.g. 125.)

year 1-
year 2-

Explanation / Answer

To compute the depreciation of a machine that uses unit of activity depreciation you want first start out with the depreciable cost. The depreciable cost is ( Cost - Salvage Value) which is 33830-430. After you calculate the depreciable cost you will divide it by the expected driven miles (33,400/151,350) to calculate the per unit depreciation. To compute the year's depreciation you want to take the per unit depreciation of .221 and times it by the miles driven in the year. For example you would take (.221*30,020) to get the Depreciation for the first year. You do the same thing for the second year except you take the miles driven in the second year of 20,630. Hope this helps and good luck !

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