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Question - During the current year, Airport Auto Rentals purchased 60 new automobiles at the cost of $14,000 per car. The cars will be sold to a wholesaler at an estimated $5,000 each as soon as they have been driven 50,000 miles. Airport Auto Rentals computes depreciation expense on its automobiles by the units-of-output method, based on mileage.
a. Compute the amount of depreciation to be recognized for each mile that a rental automobile is driven.
b. Assuming that the 60 cars are driven a total of 1,770,000 miles during the current year, compute the total amount of depreciation expense that Airport Auto Rentals should recognize on this fleet of cars for the year.
c. In this particular situation, do you believe the units-of-output depreciation method achieves a better matching of expenses with revenue than would the straight-line method? Explain.
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