   Chapter 10, Problem 10.7EX

Chapter
Section
Textbook Problem

Depreciation by units-of-activity methodA diesel-powered tractor with a cost of $90,000 and estimated residual value of$15,000 is expected to have a useful operating life of 30,000 hours. During April, the tractor was operated 120 hours. Determine the depreciation for the month.

To determine

Unit-of-activity Method: Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

Depreciation rate = CostResidual valueEstimated units of useful life

Depreciation Expense = Depreciation per unit × Usage

To determine: the depreciation for the month.

Explanation

Determine the depreciation for the month.

Depreciation rate =$2.50 per hour (1) Number of hours used in the month =120 hours Depreciation Expense = Depreciation rate × Numberofhoursused=$2.50perhour×120hours=\$300

Working note:

Determine the depreciation rate

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