Straight Line Method and Units of Production Method

A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset.

Units-of-Production method

What is the straight-line depreciation formula?

(Cost - Salvage Value) / Useful life

What is the units of production formula?

(Cost - Salvage Value) / estimated life units

Machine Cost = $80,000 Salvage Value = $20,000 Useful life Years = 6 years Useful life Units = 120,000 units Year 1 - 25,000 units Calculate depreciation using the units of productions method.

(80,000 - 20,000) / 120,000 units = 0.50 units

Machine Cost = $80,000 Salvage Value = $20,000 Useful life Years = 6 years Useful life Units = 120,000 units Year 1 - 25,000 units Calculate depreciation using the straight line method

(80,000 - 20,000) / 6 years = $10,000 / year

Machine Cost = $80,000 Salvage Value = $20,000 Useful life Years = 6 years Useful life Units = 120,000 units Year 1 - 25,000 units Units of Production = (80,000 - 20,000) / 120,000 units = 0.50 units Find out how much you pay Year 1.

25,000 units x 0.50 = $12,500

A method in which companies expense and equal amount of depreciation for each year of the asset's useful life.

Straight-line method