Unit of Production Depreciation

This is a method of calculating depreciation in which depreciation is calculated on the biases of fixed rate on per unit of the product produce in production line. This method of depreciation can be used to find out the depreciation of the machinery and equipment involved in production line.  In order to calculate depreciation by the help of unit of production method the cost of a single unit of product is first determined. This cost is then multiplied by the total number of units produced in the production line to find out total cost of the production of all the units produced. The total cost is calculated of all the units that are produced in a given accounting period. The formula of unit of production depreciation can be shown as under:-

Depreciation Expense = Total Acquisition Cost – Salvage Value / Total Number of units produced

Total number of units produced = these are the estimated number of units that can be produced by a machine throughout its life time

Total Depreciation Expense = Depreciation per unit x total number of units produced in that accounting period

With the help of the unit of production depreciation method we can find out that accumulated depreciation of the asset such as machinery or equipment is equal to the total cost of the asset subtracting the salvage value of the asset. This method has certain drawbacks one of the most prominent of that is if the number of units of production decreases the expense of depreciation also decreases however in actual this does not happens.

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