Wildhorse Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 144,000 miles. Taxi 10 cost $29,000 and is expected to have a salvage value of $200. Taxi 10 was driven 31,000 miles in 2021 and 33,500 miles in 2022. Determine the depreciation cost.

Depreciation expense/cost

For 2021 = $6200

For 2022 = $6700

Explanation:

Depreciation expense is the systematic allocation of an asset's cost over its estimated useful life. The depreciation expense is calculated using various methods. The units of activity method charges a depreciation based on the usage of the asset in a particular period as a proportion to its estimated useful life calculated in the form of total usage expected.

The formula for units of activity depreciation per period is,

Depreciation expense = [ (Cost - Salvage value) / Total estimated life time activity of the asset] * Activity performed during the period

Depreciation expense-Taxi 10:

For 2021 = [ (29000 - 200) / 144000] * 31000 = $6200

For 2022 = [ (29000 - 200) / 144000] * 33500 = $6700