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The Units of Production Method of Cost Allocation

You are asked to make a depreciation schedule for a business asset. A depreciation schedule shows the remaining value of the asset at the end of each time period.

Scenario B: A $26,000 company car is expected to be driven for 120,000 miles and then salvaged for $3,500. Find the unit depreciation using the units-of-production method.

Solution Preview

The units-of-production method is in many ways very similar to the straight-line method of depreciation in that in both cases, we must divide the cost of the vehicle less its salvage value by the estimate of its useful life. Using the straight-line method of the depreciation, the calculated estimate is in years, for the unit-of-production method the estimate is in units.

So, to answer Scenario B, we need to be able to estimate the useful life of the vehicle in units of production, which in this case is ...

Solution Summary

The units-of-production method is in many ways very similar to the straight-line method of depreciation in that in both cases, we must divide the cost of the vehicle less its salvage value by the estimate of its useful life. Using the straight-line method of the depreciation, the calculated estimate is in years, for the unit-of-production method the estimate is in units.

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