In the Units of Output method of depreciation, depreciation is charged according to the actual usage of the asset. For the Units of Output method, higher depreciation is charged when there is higher activity and less is charged when there is a lower level of operation. Zero depreciation is charged when the asset is idle for the whole period. This method is useful when a company has many fixed assets with varying usage.
Example: A plant costing $110 million was purchased on April 1, 2010. The salvage value was estimated to be $10 million. The expected production was 150 million units. The plant was used to produce 15 million units till the year ended December 31, 2010. Calculate the depreciation on the plant for the year ended December 31, 2011.