A truck costs $300,000, and is expected to run 100,000 miles during its 5-year life. Residual value is expected to be zero because the truck was used when acquired. If the truck runs 24,000 miles the first year, how much depreciation should the company record under the units-of-production method?

Question

Quizplus · Accepted Answer

The depreciation per unit of production is calculated as follows:
Depreciation per unit = (Cost - Residual value)/Total expected units of production
= ($300,000 - $0)/100,000 miles
= $3/mile

Depreciation for the first year = Depreciation per unit x Actual units produced
= $3/mile x 24,000 miles
= $72,000

A Truck Costs $300,000, and Is Expected to Run 100,000