Units of Production

The units-of-production depreciation method assigns an equal amount of expense to every unit produced or service rendered by the asset. This method is typically applied to assets employed in the production line. The formula to calculate depreciation expense involves 2 steps: (1) determine depreciation per unit ((asset's historical value - estimated salvage value) / calculable total units of production during the asset's useful life); (2) verify the expense for the accounting amount (depreciation per unit X number of units created in the period).



Under the units-of-production method, useful lifetime of the asset is expressed in terms of the total number of units expected to be produced:



Suppose, Machinery has original cost $70,000, salvage value $10,000, and is expected to produce 6,000 units.
Depreciation per unit = ($70,000−10,000) / 6,000 = $10
10 × actual production will give the depreciation cost of the current year.
The table below illustrates the units-of-production depreciation schedule of the asset.

Units of production	Depreciation cost per unit	Depreciation expense	Accumulated depreciation	Book value at end of year
				$70,000 (original cost)
1,000	10	10,000	10,000	60,000
1,100	10	11,000	21,000	49,000
1,200	10	12,000	33,000	37,000
1,300	10	13,000	46,000	24,000
1,400	10	14,000	60,000	10,000 (scrap value)