Calculating units of output depreciation

The Units of Output method is also known as the productive output, units of production, or units of activity method. It calculates depreciation based on equipment output during a period of time, while considering the equipment’s estimated lifetime units of output. Companies commonly use the Units of Output method when usage varies dramatically from period to period.

Note: The Units of Output method cannot project depreciation over the remaining asset life. The Units of Output must be entered before the system can calculate period depreciation.

To calculate Units of Output depreciation, the system must calculate a depreciation cost per unit based on the following equation:

(Original Value – Residual Value) / Estimated Lifetime Output = Depreciation Expense per Unit

The system then calculates the units of output depreciation expense for a period based on the following equation:

Depreciation Expense per Unit x Units of Output = Depreciation Expense