Units of Production Depreciation Calculator (Per Unit, Hour or Mile)
Calculate units of production (activity) depreciation: the rate per unit, machine hour or mile, and a year-by-year schedule from actual usage that stops at salvage value.
How it works
Depreciation rate = (cost − salvage value) ÷ estimated total units (hours, miles…) over the asset’s life · Depreciation for a year = units used that year × rate · book value = cost − accumulated depreciation, never below salvage
The units of production method (also called the activity or usage method) ties depreciation to how much an asset is actually used rather than to the passage of time. First work out a rate: the depreciable base (cost minus salvage value) divided by the total output you expect over the asset’s life, in units made, machine hours, miles or any other measure. Each year’s depreciation is that year’s usage times the rate, so a busy year has a large expense and an idle year has none. Enter one usage figure per year to build the full schedule. Depreciation stops once book value reaches salvage, even if the asset keeps running past its estimate. If you later revise the estimated total, the usual accounting treatment is to spread what is left (book value minus salvage) over the new remaining estimate going forward. Unlike the straight-line depreciation calculator, which charges the same amount every year, this matches the expense to wear and tear, which suits vehicles, production machinery, printing presses and mining equipment.
Worked example
A machine costs $50,000, has a $5,000 salvage value and is expected to run 20,000 machine hours. Rate = ($50,000 − $5,000) ÷ 20,000 = $2.25 per hour. Usage of 4,400, 4,000, 4,600, 3,600 and 3,400 hours gives depreciation of $9,900, $9,000, $10,350, $8,100 and $7,650. Accumulated depreciation reaches $45,000 and the book value ends at the $5,000 salvage value after all 20,000 hours.
Sources: Penn State ACCTG 211: Units of production example ($50,000, $5,000 residual, 20,000 machine hours) · Wikipedia: Depreciation (units-of-production example: $70,000, $10,000 salvage, 6,000 units) · Eduyush: Units of production method with worked examples (cap at salvage)
Frequently asked questions
How do you calculate units of production depreciation?
Subtract salvage value from cost, divide by the total units the asset is expected to produce, then multiply that rate by the units produced in the year. A $70,000 asset with $10,000 salvage and 6,000 expected units depreciates $10 per unit, so a year with 1,200 units costs $12,000.
Can I use hours or miles instead of units?
Yes. Any measure that tracks wear works: machine hours, miles or kilometers driven, flight hours, cycles or tonnes. For a truck costing $80,000 with $8,000 salvage and 200,000 expected miles, the rate is $0.36 per mile.
What happens if the asset produces more than estimated?
Depreciation stops when book value reaches salvage value, so later years have no expense even if the asset keeps working. The schedule caps the last year automatically.
Is units of production depreciation allowed for taxes?
It is widely used for financial statements. Tax rules vary: in the US most business property uses MACRS for tax, though some assets (and natural resources through depletion) use output-based methods. Check your local rules or an accountant.
What is the difference between units of production and straight-line?
Straight-line charges the same amount each year, based on time. Units of production charges based on use, so depreciation rises in busy years and falls in slow ones. Over the full life both write off the same total, cost minus salvage.
Related calculators
For accounting and tax decisions, follow your accounting standards and tax rules or ask an accountant; tax depreciation can differ from this schedule.