How to use the units of production depreciation calculator
- Enter the asset cost, the salvage value and the total units you expect the asset to produce or use over its whole life, such as miles, hours or items.
- In the table, enter the units used in each period. Add a row for each year or month you want to include.
- Read the depreciation per unit and the expense for each period.
- Check accumulated depreciation and book value. The total can never go past cost minus salvage.
Formula
Depreciation per unit = (cost - salvage value) / total expected units
Expense for a period = units used in the period x depreciation per unit
Book value = cost - accumulated depreciation
Each period is rounded to the cent. If total units used pass the expected life, the last period is cut so that book value stops at salvage.
A $50,000 machine expected to make 90,000 units
The salvage value is $5,000, so the depreciable amount is $45,000. The depreciation per unit is $45,000 / 90,000 = $0.50. If the machine made 12,000 units this year, the expense is 12,000 x $0.50 = $6,000 and the book value falls to $44,000.
Suppose the next year it makes 60,000 units: that is $30,000, for $36,000 so far and a book value of $14,000. If a third year adds 40,000 units, the formula would give $20,000, but only $9,000 is left before salvage, so the expense is capped at $9,000 and book value ends at $5,000.
When this method fits
Units of production ties depreciation to wear. It suits assets whose life depends on use rather than on time, such as delivery vehicles measured in miles, printing presses measured in impressions or machines measured in operating hours. A busy year gets a larger expense and a quiet year a smaller one.
It needs a sensible estimate of total lifetime output. If you revise the estimate later, the rate for the remaining periods changes, and this tool does not model a mid-life revision.
Choosing the unit
Pick a unit you can measure reliably and that really drives wear. Use the same unit for the total and for each period. Miles, machine hours and units made are the usual choices.
To compare with time-based methods, see the depreciation calculator and the double declining balance calculator. For a car, the car depreciation calculator estimates value loss over time.
Assumptions and limits
- The total expected units and the salvage value are your own estimates.
- Depreciation per unit is the same for every unit over the life of the asset.
- Each period is rounded to the cent and accumulated depreciation never exceeds cost minus salvage.
- This is a book method. Tax depreciation follows its own rules, and partial periods and revised estimates are not modeled.
Frequently asked questions
What is the units of production depreciation method?
It spreads the depreciable cost of an asset over the units it produces or uses, so that each unit carries the same depreciation. Expense follows activity instead of the calendar.
How do you calculate units of production depreciation?
Divide cost minus salvage by the total expected units to get a rate per unit, then multiply by the units used in the period. A $45,000 depreciable amount over 90,000 units is $0.50 a unit, so 12,000 units gives $6,000.
What happens if I use more units than I estimated?
Depreciation stops when book value reaches salvage. The tool cuts the last period so the total never exceeds the depreciable amount and tells you that it did.
Is units of production allowed for taxes?
This tool does not decide that. It produces a book schedule. Tax depreciation follows separate rules, so ask a tax professional what applies to your asset.