Units of Production

Units of production is a form of depreciation that is most often slightly accelerated in form. It is used in manufacturing whereby the life of the asset is based on its engineered value of units it is expected to produce. Each year, the depreciation formula is the actual number of units produced divided by the total expected times the asset’s purchase value.

Fixed Costs – Explanation and Examples

Fixed Costs

‘Fixed costs’ is a business term used mostly in cost accounting. It has several meanings based on its usage. The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume. The best example is rent for a company. It doesn’t matter whether you produce or sell one widget or several thousand, the rent must still be paid.

So why is it important to understand fixed costs?  How is it used in cost accounting and in financial reporting?  Finally, what are examples of fixed costs? 

Accelerated Depreciation – An Explanation

Accelerated Depreciation

When it comes to depreciation, no two businesses are alike. Unlike traditional straight line depreciation where the asset value is costed out to depreciation expense in equal increments over a given life expectancy, accelerated depreciation expenses the cost at higher values during the earlier accounting periods and at a lower amount towards the last half of the asset’s life expectancy.

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