Production Unit Method is also a method of calculating depreciation. According to this method, rate of depreciation is predetermined at per unit, which is calculated on the basis of total number of units produced during the life of the asset. This method gives more importance to the usage factor. Higher the number of units produced, higher will be the amount of depreciation and vice versa.

Formula to calculate:

Rate of Depreciation per unit = (Cost of machine – Estimated Scrap Value) / Estimated number of units produced