Monty Taxi service uses the units-of-activity method n computing depreciation on

Question

Monty Taxi service uses the units-of-activity method n computing depreciation on its taocabs. Each cabis expected to be dn en 145 000 miles. Ta no·10 cost s39 00 and s expected to have a savage value of $1,300. Taxi no. 10 is driven 31,000 miles in year 1 and 21,000 miles in year 2. Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places, e.g. 0.5o.) Depreciation cost per mile Compute the depreciation for each year. (Round answers to 0 decimal places, e.g. 125.) Year 1 Year 2 Depreciation

Explanation / Answer

Answer to Part 1.

Depreciation Cost per mile = (Cost – Salvage Value) / Expected Mile during the life
Depreciation Cost per mile = (39,000 – 1,300) / 145,000
Depreciation Cost per mile = $0.26

Answer to Part 2.

Depreciation Expense for a Year = Activity During the year * Cost per activity

Depreciation Expense for Year 1 = 31,000 * $0.26
Depreciation Expense for Year 1 = $8,060

Depreciation Expense for Year 2 = 21,000 * $0.26
Depreciation Expense for Year 2 = $5,460

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