Final answer:
The depreciation formula for the units-of-production method is calculated by the formula ((cost - residual value) / total estimated production) x current-year activity or production, providing a more accurate reflection of an asset's wear and tear.
Step-by-step explanation:
The formula to calculate depreciation for the units-of-production method is ((cost - residual value) / total estimated production) x current-year activity or production. This method of depreciation is based on the actual usage of the asset rather than the passage of time. Hence, it reflects the wear and tear on the asset more accurately.
Under this method, the amount of depreciation charged corresponds directly to the asset's productivity in a given period. For example, if a machine is expected to produce 100,000 units over its useful life and it produces 5,000 units in the current year, the depreciation expense for the year would be calculated based on those 5,000 units.