The production method is based solely on the use of the machine instead of how long you have it. Calculating depreciation is very similar to the straight line method. You need to know the cost, the residual value, and the estimated units of useful life. The formula is:
(Cost - Residual Value)/Estimated Units of Useful Life
For example, The cost of the machine is $10,000 and the Residual Value is $1000. You can produce 100,000 units with it. To calculate the depreciation for 1 unit, you need to do the following:
(10,000 - 1,000) = 9000 to depreciate
9000 / 100,000 = .09 per unit
First year you make 5000 units. The depreciation for the first year is:
5000 x .09 = 450
Technorati Tags: Accounting, Depreciation, Production
(Cost - Residual Value)/Estimated Units of Useful Life
For example, The cost of the machine is $10,000 and the Residual Value is $1000. You can produce 100,000 units with it. To calculate the depreciation for 1 unit, you need to do the following:
(10,000 - 1,000) = 9000 to depreciate
9000 / 100,000 = .09 per unit
First year you make 5000 units. The depreciation for the first year is:
5000 x .09 = 450
Technorati Tags: Accounting, Depreciation, Production
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