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.
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 this 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 this equation:
Depreciation Expense per Unit x Units of Output = Depreciation Expense