Sunland Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 148,000 miles. Taxi no. 10 cost $38,000 and is expected to have a salvage value of $1,000. Taxi no. 10 is driven 28,500 miles in year 1 and 21,500 miles in year 2.

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

Depreciation cost: $ per mile

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

Depreciation:

Year 1: $

Year 2: $

a. $0.25

b. Year 1 = $7,125 Year 2 = $5,375

Explanation:

Depreciation Charge using  units of activity method :

Depreciation Charge = (Cost - Salvage Value) × (period`s activity/total expected activity)

Depreciation cost per mile = (Cost - Salvage Value) / total expected activity

                                             = ($38,000-$1,000) /148,000

                                             = $0.25

YEAR 1

Depreciation  = ($38,000-$1,000) × (28,500/148,000)

                       = $7,125

YEAR 2

Depreciation  = ($38,000-$1,000) × (21,500/148,000)

                       = $5,375

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