Question

pina coloda taxi service uses the units of activity method in computing depreciation on its taxicabs. each cab is expected to be driven 153,000 miles. taxi no. 10 cost $63,200 and is expected to have a salvage value of $2000. Taxi no. 10 is driven 35,300 miles in year 1 and 20,400 miles in a year 2.

calculate depreciation coat per mile using unit of activity method

compute the depreciation for each year 1 and year 2

Answer 1

Cost per miles driven = [cost -salvage value ]/Estimated miles driven

                        =[63200 - 2000 ] / 153000

                       = 61200/ 153000

                       = .40 per miles driven .

Year	Actual miles driven	Depreciation expense [actual miles driven * cost per miles driven ]
1	35300	35300*.40 = 14120
2	20400	20400*.40= 8160