What is Depreciation
Depreciation is the gradual allocation of a resource's cost into the manufacturing cost of your products.
For example, if you've purchased an expensive machine and want to account for its cost in your manufactured products, you can set it up as a depreciable resource by specifying its initial cost and useful life.
Once you add this resource to a product, its cost will be factored into the product's cost until it's fully depreciated.
For instance, if a machine costs $100,000 and has an expected operational life of 5,000 hours, with each part requiring 2 hours of machine time, the cost allocation per part would be:
$100,000 / 5,000 hrs * 2 hrs = $40
This amount will be included in each part's cost until you manufacture:
$100,000 / $40 = 2,500 parts
After this point, the machine's cost will be fully depreciated and will no longer factor into your product costs.
Depreciation Method
The system uses the straight-line depreciation method. This means the resource's cost will be evenly distributed across products throughout its useful life.
In the example above, each of the 2,500 manufactured parts will include $40 of resource depreciation in its cost.
Depreciable Resource Details
The depreciable resource card displays essential information about the depreciation process:
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Initial Cost — the cost you specified when creating the resource
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Useful Life — the operational time you specified when creating the resource
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Price — calculated using the formula
Initial Cost / Useful Life -
Residual Value — the portion of the resource's cost that hasn't been depreciated yet, calculated as
Price * Remaining Useful Life -
Remaining Useful Life — how much operational time remains according to the specified useful life
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Accumulated Depreciation Period — how much the resource has already been used
