Units of Production Depreciation Calculator

Use the Units of Production Depreciation Calculator to calculate the depreciation expense based on the number of products that your machinery or equipment can output each year or during productive life(Useful units). Productive units provides a more defined measure in manufacturing whereby equipment is measured when used, rather than over a defined timescale (a financial year for example) which in turn allows calculation of equipment Return on Investment as part of the transformation model.

Units of Production Depreciation Calculator
Units of Production Depreciation Calculator Results
Depreciation per Unit
Depreciation for Period
Depreciable Base
[ 5 Votes ]

Units of Production Depreciation Enables You to Make the Most of Your Assets

Units of Production Depreciation Calculator. This image provides details of how to calculate Units of Production Depreciation Ratio using a calculator and notepad. By using the Units of Production Depreciation Ratio formula, the Units of Production Depreciation Calculator provides a true calculation of the depreciation expense on an asset considering the actual usage of the asset, which makes it the most accurate metric for charging depreciation

If you are running a business, you are likely using assets to produce goods that you sell on a regular basis. Every asset has its useful life and they lose a part of their value for each unit of goods they produce. The concept of these assets losing their value, can be defined by a single word 'Depreciation' and the method of calculating the ratio of depreciation respective to each unit is known as units of production depreciation.

This method calculates the depreciation expense on an asset considering the actual usage of the asset, which makes it the most accurate metric for charging depreciation. Units of production depreciation allow businesses to charge more depreciation during the periods when there is more asset usage and vice-versa.

Units of production method is useful in companies where usage varies asset to asset. It is calculated for each asset separately, let's learn some more about the calculations.

The mechanism for assessing the units of production depreciation

Let's start with the factors that affect the units of production depreciation the most:

  • Cost of asset: It refers to actual that was paid at the time of purchasing the asset.
  • Salvage value: This is expected value at the end of the depreciation period of the asset in question.
  • The Useful life of an asset: This defines the number of years the asset is likely to remain in use, in other words life expectancy of an asset.
  • Accounting period: This is generally a year, but you may calculate for quarter or half a year.
  • Depreciable base: The number obtained by subtracting salvage value from total cost is used as a depreciable base to calculate the depreciation value of each unit.

The units of production method is generally applied when assessing the depreciation of plants and machineries as their depreciation is closely related to the number of units they produce. You can do the calculation by following 3 steps:

  1. The first step is to estimate the number of units that an asset can produce during its useful life.
  2. The second step involves estimating the salvage value and then subtracting it from the original cost of the asset in order to find out the net depreciable cost. This is used to calculate the cost of production per unit.
  3. In the third step, multiply the number of units of actual production during a particular period to identify the total depreciation expense per unit for the accounting period in question.

After completing above steps you can calculate the units of production depreciation by using the following formula:

Units of Production Depreciation = [(Asset cost - Salvage value) / Units units] X Units produced

Calculating unit of production depreciation manually can be hectic and time consuming, fortunately an online calculator can be used as a substitute. Let's take a look at the way to use the calculator.

Using the calculator to assess depreciation per unit of your assets

The units of production depreciation calculator designed by iCalculator does the complex calculations for you with just a fraction of the effort that it takes for performing calculations manually. The calculator uses the above explained formula as an algorithm, all you have to do is input the following details:

  • Asset value: The actual cost of the asset.
  • Salvage value: The approximate amount that can be gained by selling the asset, after its useful life ends.
  • Useful units: These are the approximate units that you expect can be produced from the asset in question.
  • Units produced: This is the number of units that are actually produced in the accounting period in question.
  • Round decimal: To be selected from the drop down as per the decimal value you want to see.

On the basis of the above mentioned inputs, the calculator will provide you with the 3 following results:

  1. Depreciation per unit
  2. Depreciation for period
  3. Depreciable basis

Why use the calculator for depreciation calculation?

Other than saving time, the calculator will help you realize the true value that your assets have and the results can be used to compare the depreciation cost of the assets of different brands that you have used before in order to buy the assets that has the least depreciation ratio per unit.

The results can be saved for bookkeeping purposes as we as can be used to compare the depreciation cost with other firms that have the same nature of business and use similar plants or machinery. However, they should not be compared with the businesses that belong to different industries.