Units of Production Depreciation

What is Units of Production Depreciation?

The units of production depreciation method is a technique for estimating the depreciation of an asset based on the the number of units the asset produces.

The calculation is the same as the straight line depreciation method except that the lifetime is measured in units and not time.

The units of production depreciation formula is as follows:

Depreciation per unit produced = (Cost – Salvage value) / Lifetime units

For example is a machine cost 10,000, has a salvage value of 1,000, and estimated lifetime production capability of 3,000 units, then the depreciation per unit is (10,000 – 1,000) / 3,000 = 3 per unit produced.

If the production is 250 units, then the depreciation expense will be 250 x 3 = 750

Additional information on this method of depreciation can be found in our tutorial on the units of production depreciation method.

For further information on units of production depreciation see the Wikipedia definition.

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Last modified March 23rd, 2016 by Team

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