Which method requires that depreciation be calculated based on an asset's total units produced or hours used?

The units of production method is designed specifically to allocate depreciation based on the actual usage of an asset. This method recognizes that the wear and tear on an asset may not occur uniformly over time or usage, and so it ties the expense of depreciation directly to the output or hours used rather than merely the passage of time.

Under this method, the total depreciable amount (cost minus salvage value) is divided by the estimated total units of production or total hours the asset is expected to be used during its useful life. Depreciation expense in any given period is then determined by multiplying this per-unit depreciation amount by the number of units produced or hours used during that period.

This approach is particularly useful for assets where usage significantly affects their wear and tear, such as machinery or vehicles, making it an effective method for capturing the expense relative to how much the asset is actually utilized over its life cycle.