Which depreciation method is most appropriate for a machine whose wear is driven by production volume, compared with a nonproduction asset?

• A. Straight-line for a production-driven machine
• B. Units-of-production for a production-driven machine
• C. Straight-line for all production-driven assets
• D. Units-of-production for a nonproduction asset

Answer: (B)

When wear and tear depend on how much the machine is used, depreciation should follow that usage. For a production-driven machine, the units-of-production method ties depreciation directly to actual output, so the expense mirrors the wear incurred by producing goods. You determine depreciation per unit as (cost minus salvage value) divided by the total estimated production units, then multiply by the number of units produced in the period. This results in higher depreciation in busy periods and lower depreciation when production is light, matching the asset’s actual usage and the revenue it helps generate.

Using straight-line would spread the cost evenly over time, which doesn’t reflect that more wear occurs with higher production. Applying straight-line to all production-driven assets ignores the specific usage pattern of the asset. Assigning units-of-production to a nonproduction asset isn’t appropriate because its wear isn’t driven by production volume, so the depreciation should be based on a usage measure that reflects how the asset wears in its actual use.