EXERCISE 3: Units of Production Method Revert back to the original assumptions for the car (Useful Life: 5 years, Salvage Value: $2.000), Luciano's estimates that the car will be driven a total of 80,000 miles over its life. Use the Units of Production method to calculate the rate per mile to be used for depreciation. Step 1: Calculate the rate per mile. $ /mile miles Step 2: Multiply the rate by the activity: Assume the following miles driven each year. Year 1 10,000 miles Year 2 15,000 miles Year 3 18.000 miles Year 4 20,000 miles Year 5 17,000 miles Calculate the yearly depreciation expense using the Units of Production method Year Activity X Rate Depreciation Expense. Year 1 miles x S mile = $ Year 2 miles x S /mile $ Year 3 miles x $ /mile $ Year 4 miles x $ mile $ Year 5 miles x 5 /mile $ TOTAL $ NOTE: An asset cannot be depreciated below its salvage value. So, if the estimates for use (i.e. mileage in the above example) turn out to be incorrect, you may need to adjust the calculation for the last year's depreciation amount.