Which formula represents the Units of Output depreciation method?

Which formula represents the Units of Output depreciation method?

• A. (UU/TU) * (OC - RV)
• B. (OC - RV)/EUL
• C. (TU/UU) * RV
• D. (OC + RV) * (UU/TU)

Answer: (A)

Units of Output depreciation allocates cost based on actual usage. You treat the asset’s wear and tear as proportional to how much it’s been used, not just time. First, determine the amount that can be depreciated: cost minus residual (salvage) value. Then apply the proportion of actual units produced to the total estimated units for the asset’s life. The depreciation for a period is: (depreciable amount) × (units produced in the period / total estimated units) In symbols: (UU / TU) × (OC − RV) Where UU is units produced in the period, TU is total estimated units for the asset's life, OC is original cost, and RV is residual value. Example: if OC = 100, RV = 10, so depreciable amount is 90; actual units = 500, total estimated units = 1000. Depreciation = (500/1000) × 90 = 45. This shows how depreciation rises with usage and is capped by the total depreciable amount.

Units of Output depreciation allocates cost based on actual usage. You treat the asset’s wear and tear as proportional to how much it’s been used, not just time.

First, determine the amount that can be depreciated: cost minus residual (salvage) value. Then apply the proportion of actual units produced to the total estimated units for the asset’s life. The depreciation for a period is:

(depreciable amount) × (units produced in the period / total estimated units)

In symbols: (UU / TU) × (OC − RV)

Where UU is units produced in the period, TU is total estimated units for the asset's life, OC is original cost, and RV is residual value.

Example: if OC = 100, RV = 10, so depreciable amount is 90; actual units = 500, total estimated units = 1000. Depreciation = (500/1000) × 90 = 45. This shows how depreciation rises with usage and is capped by the total depreciable amount.