Question

During the current year, Central Auto Rentals purchased 60 new automobiles at a cost of $23,400 per car. The cars will be sold to a wholesaler at an estimated $3,000 each as soon as they have been driven 51,000 miles. Central Auto Rentals computes depreciation expense on its automobiles by the units- of-output method, based on mileage. a. Compute the amount of depreciation to be recognized for each mile that a rental automobile is driven. b. Assuming that the 60 rental cars are driven a total of 1,770,000 miles during the current year, compute the total amount of depreciation expense that Central Auto Rentals should recognize on this fleet of cars for the year. Complete this question by entering your answers in the tabs below.

Answer 1

a. Amount of Depreciation to be recognized:

Cost of Automobile = 23400

Resale value = 3000

Net Asset Value = 20400

Miles traveled by each Automobile = 51000 miles

Depreciation per Mile = 20400/51000

= 0.4/Mile

b.

Total miles traveled = 1770000 Miles

therefore, total depreciation to be charged = 0.4 x 1770000 Miles

= 708000