What characterizes the Units of Production (UOP) method of depreciation?

The Units of Production (UOP) method of depreciation is characterized by the fact that depreciation expense fluctuates based on the asset's usage or output. This method ties the depreciation expense directly to the actual production or usage levels of the asset rather than assigning a fixed expense each year. As the asset is used more, the depreciation expense increases, reflecting the wear and tear based on its activity, which provides a more accurate representation of the asset's actual economic value over time.

This is particularly advantageous for assets whose wear is more closely linked to their operational use, such as machinery or vehicles, as it aligns the cost of using the asset with the revenue generated by its usage. In contrast, a method that employs a fixed annual depreciation rate does not consider the asset's actual usage, which can lead to a mismatch between expense recognition and revenue generation.