{"id":239,"date":"2024-09-06T16:47:49","date_gmt":"2024-09-06T16:47:49","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/units-of-production-method\/"},"modified":"2024-09-11T18:49:52","modified_gmt":"2024-09-11T18:49:52","slug":"units-of-production-method","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/units-of-production-method\/","title":{"raw":"Units-of-Production Method","rendered":"Units-of-Production Method"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Compute depreciation using units-of-production method<\/li>\r\n<\/ul>\r\n<\/section><section class=\"textbox keyTakeaway\" aria-label=\"Key Takeaway\">\r\n<h3>Units-of-production (output) method<\/h3>\r\nThe units-of-production depreciation method assigns an equal amount of depreciation to each unit of product manufactured or service rendered by an asset. Since this method of depreciation is based on physical output, firms apply it in situations where usage rather than obsolescence leads to the demise of the asset. Under this method, you would compute the depreciation charge per unit of output. Then, multiply this figure by the number of units of goods or services produced during the accounting period to find the period\u2019s depreciation expense.\r\n\r\nThe units of production method requires a two-step process:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Step 1: Calculate Depreciation per Unit:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">[latex]\\text{Depreciation per unit}=\\dfrac{\\left(\\text{Cost}-\\text{Salvage}\\right)}{\\text{expected number of units over lifetime}}[\/latex]<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Step 2: Calculate Depreciation Expense:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">[latex]\\text{Depreciation Expense}=\\text{Number of units produced this period}\\times\\text{Depreciation per unit}[\/latex]<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\">Here is a video example:<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=5475497&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=udNuu_7zje0&amp;video_target=tpm-plugin-gnnhboov-udNuu_7zje0\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe>You can view the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/UnitsofProductionDepreciation_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Units of Production Depreciation\" here (opens in new window)<\/a>.<\/section>&nbsp;\r\n\r\nNext, we\u2019ll learn how to journalize adjusting entries to record depreciation.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25186[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Compute depreciation using units-of-production method<\/li>\n<\/ul>\n<\/section>\n<section class=\"textbox keyTakeaway\" aria-label=\"Key Takeaway\">\n<h3>Units-of-production (output) method<\/h3>\n<p>The units-of-production depreciation method assigns an equal amount of depreciation to each unit of product manufactured or service rendered by an asset. Since this method of depreciation is based on physical output, firms apply it in situations where usage rather than obsolescence leads to the demise of the asset. Under this method, you would compute the depreciation charge per unit of output. Then, multiply this figure by the number of units of goods or services produced during the accounting period to find the period\u2019s depreciation expense.<\/p>\n<p>The units of production method requires a two-step process:<\/p>\n<ul>\n<li style=\"font-weight: 400;\">Step 1: Calculate Depreciation per Unit:\n<ul>\n<li style=\"font-weight: 400;\">[latex]\\text{Depreciation per unit}=\\dfrac{\\left(\\text{Cost}-\\text{Salvage}\\right)}{\\text{expected number of units over lifetime}}[\/latex]<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\">Step 2: Calculate Depreciation Expense:\n<ul>\n<li style=\"font-weight: 400;\">[latex]\\text{Depreciation Expense}=\\text{Number of units produced this period}\\times\\text{Depreciation per unit}[\/latex]<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\">Here is a video example:<iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=5475497&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=udNuu_7zje0&amp;video_target=tpm-plugin-gnnhboov-udNuu_7zje0\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe>You can view the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/UnitsofProductionDepreciation_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Units of Production Depreciation&#8221; here (opens in new window)<\/a>.<\/section>\n<p>&nbsp;<\/p>\n<p>Next, we\u2019ll learn how to journalize adjusting entries to record depreciation.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25186\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25186&theme=lumen&iframe_resize_id=ohm25186&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":10,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Units-of-Production Method\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Units of Production Depreciation Method\",\"author\":\"Kristin Ingram\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/udNuu_7zje0\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube license\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":229,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Units-of-Production Method","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""},{"type":"cc","description":"Accounting Principles: A Business Perspective","author":"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University","organization":"Endeavour International Corporation","url":"","project":"The Global Text Project","license":"cc-by","license_terms":""},{"type":"copyrighted_video","description":"Units of Production Depreciation Method","author":"Kristin Ingram","organization":"","url":"https:\/\/youtu.be\/udNuu_7zje0","project":"","license":"arr","license_terms":"Standard YouTube license"}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/239"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":4,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/239\/revisions"}],"predecessor-version":[{"id":664,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/239\/revisions\/664"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/229"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/239\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=239"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=239"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=239"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}