Units of Production Depreciation is a method used to calculate the depreciation of an asset based on its actual usage or production output. This approach is particularly useful for assets whose wear and tear is more closely related to how much they are used rather than the passage of time. For example, a machine used in a factory may depreciate more quickly if it operates for many hours each day. To calculate depreciation using this method, you first determine the asset's total estimated production capacity over its useful life. Then, you divide the asset's cost by this capacity to find the depreciation expense per unit. Finally, you multiply this expense by the number of units produced in a given period to find the total depreciation for that period.