Instead of spreading cost over time, the units of production method spreads it over the asset's expected total output or usage. Busy years get more depreciation; idle years get less.
Formula
Rate per unit = (Cost − Salvage value) ÷ Total expected units
Depreciation for the period = Units used in the period × Rate per unit
Worked example
A machine costs $30,000, salvage value $5,000, expected to run 10,000 hours in its life.
| Year | Hours used | Depreciation at $2.50/h | Closing NBV |
|---|---|---|---|
| 1 | 2,400 | $6,000 | $24,000 |
| 2 | 3,100 | $7,750 | $16,250 |
| 3 | 1,800 | $4,500 | $11,750 |
Why it matters
It matches expense to wear for assets such as vehicles, production machinery and mining equipment. It needs reliable usage readings each period.
Try the numbers yourself in our free depreciation calculator.
In Asetavo
Units of production is one of Asetavo's eight depreciation methods.