Speedy Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 161,790 miles. Taxi 10 cost $25,410 and is expected to have a salvage value of $470. Taxi 10 was driven 33,350 miles in 2013 and 33,790 miles in 2014.

Determine the depreciation cost

Instructions are below.

Explanation:

Giving the following information:

Each cab is expected to be driven 161,790 miles.

Taxi 10 cost $25,410 and is expected to have a salvage value of $470. Taxi 10 was driven 33,350 miles in 2013 and 33,790 miles in 2014.

To calculate the depreciation expense under the units of activity method, we need to use the following formula for each year.

Annual depreciation = [ (original cost - salvage value) / useful life of production in miles]*miles driven

2013:

Annual depreciation = [ (25,410 - 470) / 161,790]*33,350

Annual depreciation = $5,140.92

2014:

Annual depreciation = [ (25,410 - 470) / 161,790]*33,790

Annual depreciation = $5,208.74