Production Unit Method in Depreciation

Production Unit Method in Depreciation

When production can be estimated for the life span of a machine this method may be used to charge depreciation directly on to the products as a variable overhead.

Example
A soap company installs a toilet-soap table ting machine which produces 1 dozen tablets per operation. The cost of the machine is $60,000.

It is estimated that production will be in the order of 12 million tablets before the machine has to be replaced. The  depreciation per dozen tablets will be:
$60,00/12,000,000 x 12= $ 0.06

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