What is units-of-production depreciation?
The activity, or units-of-production, method allocates an asset's cost based on how much it is actually used rather than how much time passes. It is ideal for machinery, vehicles, and equipment whose wear depends on output — miles driven, hours run, or units manufactured. Periods of heavy use absorb more depreciation expense, while idle periods absorb less, so the expense closely tracks the asset's contribution to production.
How to use this calculator
Enter the original asset cost, the estimated salvage value at the end of its useful life, the total estimated units the asset is expected to produce over its lifetime, and the units produced this period. The calculator returns the depreciation expense for the period, the per-unit rate, the depreciable base, and the resulting book value.
The formula explained
First find the depreciable base: Cost − Salvage. Divide that by total estimated units to get a fixed depreciation rate per unit. Multiply that rate by the units produced in the period to get the period's depreciation expense:
$$\text{Depreciation} = \frac{\text{Cost} - \text{Salvage}}{\text{Total Units}} \times \text{Units This Period}$$
Worked example
A machine costs $50,000 with a $5,000 salvage value and is expected to produce 100,000 units. Depreciable base = $45,000. Rate = \(45{,}000 \div 100{,}000 = \$0.45\) per unit. If it produces 12,000 units this period, depreciation = $$0.45 \times 12{,}000 = \$5{,}400,$$ leaving a book value of $44,600.
FAQ
When should I use the activity method instead of straight-line? Use it when usage varies significantly between periods and drives the asset's wear, rather than the passage of time.
Can total depreciation exceed the depreciable base? No. You should stop depreciating once accumulated depreciation reaches Cost − Salvage, even if more units are produced.
Is salvage value required? If there is none, enter 0; the full cost then becomes the depreciable base.
