The units-of-production depreciation method bases depreciation expense on:

Question

Accepted Answer

The actual usage or output of the asset. The units-of-production method bases depreciation expense on the actual usage or output of the asset during each period. The depreciable cost (cost minus salvage value) is divided by the total estimated units of production over the asset's life to get a per-unit depreciation rate, which is then multiplied by the actual units produced each period.

Basing depreciation on the passage of time describes the straight-line method, which allocates equal depreciation expense to each year regardless of how much the asset is used. Using a percentage of declining book value describes the declining balance methods (such as double-declining balance), which apply a fixed rate to the decreasing book value each period. The sum of the years of useful life describes the sum-of-the-years-digits method, which uses a fraction based on the remaining years as a proportion of the total.

The units-of-production method is an important depreciation alternative tested on the DSST Business Mathematics exam. It is particularly appropriate for assets whose wear and tear is more closely related to use than to time, such as manufacturing equipment, vehicles, and mining equipment. Students should understand when each depreciation method is most appropriate and how to calculate depreciation under each.

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