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If a company bases depreciation expense on life of a machine in hours and depreciates machine for number of hours used during the year, it is using the unit of production method of depreciation.
The unit of production method of depreciation is employed when a corporation bases depreciation expense on the life of a machine in hours and depreciates a machine for the number of hours used during the year. It is a way of calculating asset depreciation based on units of output produced. This method is often used for assets that have a high initial cost but are expected to produce a large number of units over their useful life, such as machinery or equipment used in manufacturing.
The unit of production method of depreciation is useful because it allows a company to allocate the cost of an asset more accurately over its useful life. It is particularly useful for assets that are expected to produce a large number of units, as it can help to better match the asset's depreciation expense with its actual usage.
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