Question

Vango, Inc. depreciates its truck using units-of-production based on miles. Vango drove its truck 50,000 miles in year 1 and 70,000 miles in year 2. Depreciation expense will be ______ in year 1 compared to year 2.

Answer 1

Depreciation expense will be 40% more in year 1 compared to year 2.

Step-by-step explanation:

Activity based depreciation is the amount of depreciation which is calculated on the basis of the work done by the asset in the period. The ration of work done by the total estimated work by asset is multiplied to the depreciable value of asset.

In this question the miles driven by the truck is the activity level.

Year 1 = 70,000 miles

Year 2 = 50,000 miles

Ratio of Year to yer 2 = 70,000 / 50,000 = 1.40

As depreciation is based on these value so, the depreciation of year 1 is 40% more than the depreciation of year 2.

Answer 2

depreciation expense will be 40% less in year 1 compared to year 2

Step-by-step explanation:

activity based depreciation is the depreciation of an machine used for production in relation to the amount of work done by the machine with a given time. The more the work done the more the deprecation rate of the machine.

In year 1 Vango truck covered = 50,000 miles

In year 2 Vango truck covered = 70,000 miles

calculate the ratio of work done in year 2 in relation to year 1 = 70000/50000

= 1.40

this shows that Vango truck did 40% more in year 2

Hence depreciation expense will be 40% less in year 1 compared to year 2