Question

A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 100,000 miles of service. Using the units-of-production method, what is the first year's depreciation if the van is driven 30,000 miles? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A. $14,400

B. $1,800

C. $12,600

D. $10,800

Answer 1

The first year's depreciation for the van driven 30,000 miles using the units-of-production method is $10,800.

Step-by-step explanation:

The units-of-production method is used to calculate depreciation based on the number of units produced or used. In this case, the units are miles. To calculate the depreciation for the first year, we need to determine the depreciation per mile and then multiply it by the number of miles driven.

The depreciation per mile is calculated by subtracting the salvage value from the initial cost and dividing it by the total estimated miles of service. In this case, the depreciation per mile is ($42,000 - $6,000) / 100,000 miles = $0.36 per mile.

Therefore, the first year's depreciation for driving 30,000 miles would be $0.36 per mile * 30,000 miles = $10,800. So, the correct answer is D. $10,800.