**Scenario: **Imagine we run a lemonade stand and bought a lemon squeezer for $200. Each year as we use the lemon squeezer, it takes on wear-and-tear. After 3 years utilizing the lemon squeezer, it breaks and we sell the salvaged parts for $20.

The lemon squeezer is estimated to be able to squeeze 18,000 lemons. The actual number of lemons squeezed per year are:

**Year 1**: 7,500**Year 2**: 2,500**Year 3**: 5,000

Using the activity-based depreciation method, calculate the annual depreciation on our lemon squeezer.

We can use the following formula to determine the depreciation per unit (lemon squeezed) on our lemonade machine.

**Depreciation per Unit** = (**Original Cost** - **Residual Value**) / (**# of Units Expected**)

In this scenario, we're given the following values...

**Scenario: **Imagine we run a lemonade stand and bought a lemon squeezer for $200. Each year as we use the lemon squeezer, it takes on wear-and-tear. After 3 years utilizing the lemon squeezer, it breaks and we sell the salvaged parts for $20.

The lemon squeezer is estimated to be able to squeeze 18,000 lemons. The actual number of lemons squeezed per year are:

**Year 1**: 7,500**Year 2**: 2,500**Year 3**: 5,000

Using the activity-based depreciation method, calculate the annual depreciation on our lemon squeezer.

...which can be plugged in like so:

**Depreciation per Unit** = (**Original Cost** - **Residual Value**) / (**# of Units Expected**)

**Depreciation per Unit** = ($200 - $20) / (18,000)

This means that our lemon squeezer depreciates by $0.01 per lemon squeezed!

**Depreciation per Unit** = (**Original Cost** - **Residual Value**) / (**# of Units Expected**)

**Depreciation per Unit** = ($200 - $20) / (18,000)

**Depreciation per Unit** = $180 / 18,000

**Depreciation per Unit** = $0.01

**Depreciation per Unit** = (**Original Cost** - **Residual Value**) / (**# of Units Expected**)

**Depreciation per Unit** = ($200 - $20) / (18,000)

**Depreciation per Unit** = $180 / 18,000

**Depreciation per Unit** = $0.01

From here, we can multiply each year's lemon count by $0.01...

**Year 1**: 7,500 x $0.01 = ???**Year 2**: 2,500 x $0.01 = ???**Year 3**: 5,000 x $0.01 = ???

...to compute each year's depreciation expense!

**Year 1**: 7,500 x $0.01 = **$75****Year 2**: 2,500 x $0.01 = **$25****Year 3**: 5,000 x $0.01 = **$50**

**Year 1**: 7,500 x $0.01 = **$75****Year 2**: 2,500 x $0.01 = **$25****Year 3**: 5,000 x $0.01 = **$50**