<\/span><\/h2>\nTo calculate units of production depreciation, you need the following information:<\/p>\n
1. Asset Cost:<\/b> Determine the initial cost of the asset, which includes the purchase cost, delivery charges, installation fees, and any other expenses related to acquiring the asset.<\/p>\n
2. Estimated Total Production:<\/b> Determine the total number of units the asset is expected to produce over its useful life. This estimation can be based on historical data, industry averages, or expert opinions.<\/p>\n
3. Salvage Value:<\/b> Determine the estimated value of the asset at the end of its useful life. This is the amount you expect to receive from selling or disposing of the asset once it is no longer usable.<\/p>\n
4. Calculate Depreciation Rate:<\/b> Subtract the salvage value from the asset’s cost and divide it by the estimated total production to calculate the depreciation rate per unit.<\/p>\n
5. Calculate Depreciation Expense:<\/b> Multiply the depreciation rate per unit by the actual production during a specific period to determine the depreciation expense for that period.<\/p>\n
To illustrate the calculation, let’s consider an example:
\nAn electric generator costs $10,000, has an estimated total production of 50,000 units, and a salvage value of $1,000. If during a specific period, 5,000 units were produced, the calculation will be as follows:<\/p>\n
Depreciation Rate per Unit = ($10,000 – $1,000) \/ 50,000 = $0.18
\nDepreciation Expense for the period = $0.18 x 5,000 = $900<\/p>\n
Therefore, the depreciation expense for that period is $900.<\/p>\n