Units of Production Depreciation: worked example
| Purchase cost | $80,000 |
|---|---|
| Salvage value | $8,000 |
| Total units over the asset's life | 240,000 |
| Units used this period | 30,000 |
| Depreciation this period | $9,000 |
| Depreciation per unit | $0.30 |
Units of Production Depreciation: formula
Common error: Counting units beyond the asset's rated total. Depreciation stops when the total is used up, and the page caps the units to that limit.
Purchase cost less salvage value is the depreciable amount. Lifetime units are total expected output. Units can represent machine hours, miles or items produced.
Period units are the actual usage being allocated. Estimate total units from the manufacturer's rating or your own history. Update the estimate if experience shows the asset will last longer or shorter than expected.
Units of Production Depreciation: changing Purchase cost
| Purchase cost | Depreciation this period | Depreciation per unit |
|---|---|---|
| $64,000 | $7,000 | $0.23 |
| $72,000 | $8,000 | $0.27 |
| $80,000 (example) | $9,000 | $0.30 |
| $88,000 | $10,000 | $0.33 |
| $96,000 | $11,000 | $0.37 |
Units of Production Depreciation: compare input ranges
| Input | Tested from | To | Depreciation this period: low input | Depreciation this period: high input | Swing |
|---|---|---|---|---|---|
| Purchase cost | $72,000 | $88,000 | $8,000 | $10,000 | $2,000 (22%) |
| Total units over the asset's life | 216,000 | 264,000 | $10,000 | $8,182 | $1,818 (20%) |
| Units used this period | 27,000 | 33,000 | $8,100 | $9,900 | $1,800 (20%) |
| Salvage value | $7,200 | $8,800 | $9,100 | $8,900 | $200 (2.2%) |
Units of Production Depreciation: individual input comparisons
| Input | Value | Depreciation this period | Depreciation per unit |
|---|---|---|---|
| Purchase cost | $64,000 | $7,000 | $0.23 |
| $72,000 | $8,000 | $0.27 | |
| $80,000 | $9,000 | $0.30 | |
| $88,000 | $10,000 | $0.33 | |
| $96,000 | $11,000 | $0.37 | |
| Salvage value | $6,400 | $9,200 | $0.31 |
| $7,200 | $9,100 | $0.30 | |
| $8,000 | $9,000 | $0.30 | |
| $8,800 | $8,900 | $0.30 | |
| $9,600 | $8,800 | $0.29 | |
| Total units over the asset's life | 192,000 | $11,250 | $0.38 |
| 216,000 | $10,000 | $0.33 | |
| 240,000 | $9,000 | $0.30 | |
| 264,000 | $8,182 | $0.27 | |
| 288,000 | $7,500 | $0.25 | |
| Units used this period | 24,000 | $7,200 | $0.30 |
| 27,000 | $8,100 | $0.30 | |
| 30,000 | $9,000 | $0.30 | |
| 33,000 | $9,900 | $0.30 | |
| 36,000 | $10,800 | $0.30 |
Units of Production Depreciation: combined input changes
| Purchase cost / Salvage value | $6,400 | $8,000 | $9,600 |
|---|---|---|---|
| $64,000 | $7,200 | $7,000 | $6,800 |
| $72,000 | $8,200 | $8,000 | $7,800 |
| $80,000 | $9,200 | $9,000 | $8,800 |
| $88,000 | $10,200 | $10,000 | $9,800 |
| $96,000 | $11,200 | $11,000 | $10,800 |
Units of Production Depreciation: which assumptions move the result?
Units of Production Depreciation: values and definitions
| Quantity and definition | Value used |
|---|---|
| Purchase cost | $80,000 |
| Salvage value | $8,000 |
| Total units over the asset's life — Miles, machine hours or items produced. | 240,000 |
| Units used this period | 30,000 |
| Depreciation this period | $9,000 |
| Depreciation per unit | $0.30 |
Units of Production Depreciation: half and double Purchase cost
| Purchase cost | Depreciation this period |
|---|---|
| $40,000 | $4,000 |
| $80,000 | $9,000 |
| $160,000 | $19,000 |
It requires a reliable estimate of total lifetime units, and tracking usage takes effort. It is a book method and not one of the tax methods for most business assets. Assets that decay over time regardless of use, such as buildings or software, are a poor fit.
Business Finance calculators: OEE (Overall Equipment Effectiveness) Calculator, Takt Time Calculator, Safety Stock Calculator, Little's Law Calculator, Conversion Rate Calculator, A/B Test Significance Calculator.
Some assets wear out by use, not by the calendar. Under the units-of-production method, the depreciable amount is divided by the total units the asset should produce, and each period takes its share. A $80,000 machine with $8,000 salvage and 240,000 units of life costs 30 cents a unit, so a year with 30,000 units takes $9,000.
A quiet year takes very little.
With an assumed $80,000 depreciable basis, an expected 200,000 lifetime units gives $0.40 depreciation per unit; using 100,000 units instead gives $0.80 per unit for the same basis. The denominator matters. A manufacturer’s rating or documented operating history can support the estimate, but neither one guarantees that actual lifetime production will equal it.
Compare with straight-line and accelerated methods on the straight-line, double-declining-balance and sum-of-years'-digits calculators. The OEE calculator shows how well equipment is used, and the equipment lease versus buy page uses expected life. Keep usage logs to support the expense.
When should I use units of production?
When an asset's wear depends on usage, such as delivery trucks measured in miles, machines in operating hours, or equipment in units produced.
What if actual usage differs from the estimate?
Revise the estimate of total lifetime units and spread the remaining book value over the new remaining units.
Does this method depreciate to salvage value?
Yes, if the asset is used up to its estimated total units. Depreciation stops when book value reaches salvage.