The Units of Production Method is a depreciation method available for book purposes under U.S. Generally Accepted Accounting Principles (GAAP). 

The method does not use time to calculate the depreciation expense. Instead, it uses the number of units an asset can produce. This method is frequently used with machinery equipment; however, it can apply under other circumstances. 

The formula to calculate units of production expense is the following:

Depreciation Per Unit = (Cost of Asset – Salvage Value) / Estimated Number of Units Produced

The formula for yearly depreciation expense is the following:

Depreciation Expense = (Number of Units Produced) X (Depreciation per Unit)

Example Calculation for Units of Production

Company Alpha, a U.S. corporation, is a Florida-based manufacturer of cell phone cases for various models. 

Company Alpha purchased a piece of manufacturing equipment for $75,000 and put it into service on January 1, 2021. The company estimates that the machine will be able to produce 400,000 cell phone cases before it breaks. The estimated salvage value is $1,000. 

In year 1, the company used the machine to produce 50,000 cases. 

The calculation for depreciation per unit (DPU) is the following:

DPU = ($75,000 – $1,000) / 400,000
DPU = $0.185

The calculation for depreciation expense in year 1 is the following:

Depreciation Expense = 50,000 X $0.185
Depreciation Expense = $9,250

Company Alpha’s book depreciation expense for the machinery is $9,250 for the first year.

Other Depreciation Methods

Other available U.S. GAAP depreciation methods include the following: