Some assets wear out from use, not from the calendar. A bottling line that runs double shifts wears faster than one that sits idle half the year, and its depreciation should reflect that. The units-of-production method ties each year’s expense to actual output, so cost follows production. This calculator turns your cost, salvage value and lifetime output estimate into a rate per unit, then applies it to each year’s production to build the schedule.
How to use the units-of-production calculator
- Enter the asset cost and expected salvage value.
- Enter the total units the asset should produce over its life — from the manufacturer’s rating or your own history.
- List the units produced each year, one year per line. Repeat equal years with shorthand such as
180000x3.
The results show the cost per unit, year 1 depreciation, how much of the lifetime estimate has been used, and the remaining book value.
Units-of-production formulas
Depreciation never takes book value below salvage value.
Worked example
A packaging company buys a filling machine for $120,000, expects $12,000 salvage, and estimates it will fill 900,000 cases over its life.
- Rate per unit: ($120,000 − $12,000) ÷ 900,000 = $0.12 per case
| Year | Cases filled | Depreciation | Ending book value |
|---|---|---|---|
| 1 | 150,000 | $18,000 | $102,000 |
| 2 | 210,000 | $25,200 | $76,800 |
| 3 | 240,000 | $28,800 | $48,000 |
| 4 | 180,000 | $21,600 | $26,400 |
| 5 | 120,000 | $14,400 | $12,000 |
Production totals exactly 900,000 cases, so the machine finishes at its $12,000 salvage value. Depreciation in the busiest year is twice that of the slowest — a pattern straight-line would hide behind a flat $21,600 a year.
Why match depreciation to output
- Better product costing. Depreciation becomes a variable cost per unit — here 12 cents a case — that can be built directly into pricing and margins.
- Smoother margins in slow years. When production drops, so does depreciation expense, rather than a fixed charge eating into a smaller revenue base.
- Realistic book values. A lightly used machine keeps more of its book value, which better reflects its remaining service.
The method works best when output is measurable and is the main driver of wear. It is less suitable for assets that lose value over time regardless of use, such as computers that become obsolete.
Related methods
The same idea applied to resources is cost depletion, which spreads the cost of a mine, well or timber tract over the units extracted. When wear depends on an input such as hours of operation or miles driven rather than units of output, the activity method calculator lets you choose the measure and project equal usage. For time-based alternatives, compare with straight-line or the four-method depreciation calculator.
Schedules are estimates for planning and bookkeeping, not accounting or tax advice.
Frequently asked questions
What is the units-of-production formula?
Depreciation per unit = (cost − salvage value) ÷ total units the asset is expected to produce. Each year's depreciation is that rate times the units actually produced that year.
What counts as a 'unit'?
Any measure of output that tracks how the asset wears out: parts stamped, bottles filled, tons of material processed, pages printed. For input measures such as machine hours or miles, see the activity method calculator.
What if total production exceeds the original estimate?
Depreciation stops when book value reaches salvage value, even if the asset keeps producing. The calculator caps the final charge and notes it in the schedule.
Can units-of-production be used for taxes?
In limited cases. IRS Publication 946 allows you to elect out of MACRS for property you properly depreciate under a method not based on a term of years, such as units of production. Most business property, however, is depreciated under MACRS.
What if my estimate of total units changes?
Revise the rate going forward: divide the remaining book value minus salvage by the remaining expected units. Past years are not restated; this is a change in accounting estimate.