Units-of-Production Depreciation

Units-of-Production Depreciation is a method of allocating the cost of a tangible asset over its useful life based on the asset’s usage, output, or activity level. This approach ties depreciation expense directly to the asset’s productivity, making it ideal for machinery or equipment with variable usage. The depreciation expense is calculated by dividing the asset’s cost by its estimated total production capacity and multiplying by the actual units produced.