Tamarisk Taxi Service uses the units-of-activity method in computing depreciatio

Question

Tamarisk Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 160,000 miles. Taxi no. 10 cost $35,000 and is expected to have a salvage value of $1,400. Taxi no. 10 is driven 32,500 miles in year 1 and 24,500 miles in year 2.

1. Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.)

2. Compute the depreciation for each year. (Round answers to 0 decimal places, e.g. 125.)

Explanation / Answer

Ans:

Depreciation cost per mile using unit-of-activity method

=(35000-1400)/160000

= 0.21 cost per mile

Ans 2:

depreciation for each year:   Year 1= 32500 x 0.21= $ 6825

depreciation for each year:   Year 2= 24500 x 0.21= $ 5145

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