What method of depreciation uses the original cost and adjusts for the quantity of units produced?

The selected method for depreciation, which utilizes the original cost and adjusts based on the quantity of units produced, is indeed the unit produced method. This approach is particularly relevant for assets whose wear and tear—along with their value depreciation—can be more accurately tracked through their usage or output.

In this method, depreciation expense is calculated by determining a per-unit cost for the asset based on its original cost and estimated total units it can produce throughout its useful life. For every unit produced, a portion of this cost is then assigned as depreciation expense. This allows businesses to match the capital expenditure on the asset with the revenue generated from its use, leading to a more accurate reflection of asset value over time, particularly when production levels fluctuate significantly.

This method stands in contrast to other depreciation methods that do not correlate as directly with asset usage. For example, the sum of years digits method and the straight-line method allocate depreciation more evenly or based on fixed schedules rather than adjusting dynamically based on production. The MACRS (Modified Accelerated Cost Recovery System) method is primarily used for tax purposes and also does not account for units produced. Thus, the unit produced method is the most appropriate choice for scenarios where varying levels of output directly impact the wear and functionality of an asset