Which statement about Units of Activity Depreciation is true?

The statement that Units of Activity Depreciation varies based on productivity or usage is indeed correct. This method of depreciation takes into account the actual use of an asset rather than a fixed time period. For example, if a piece of equipment is used more heavily in one year than in another, the depreciation expense will reflect that increased usage. This approach aligns the expense recognized for depreciation with the actual wear and tear on the asset, offering a more accurate representation of an asset's consumption and its impact on the company’s cash flow.

In contrast, other methods of depreciation, such as straight-line or declining balance, do not adjust for actual usage and rely on pre-established estimates of the asset's useful life and residual value. By focusing on productivity or usage, Units of Activity Depreciation provides a clearer financial picture, especially for assets whose utility might fluctuate based on operational factors. This makes it particularly useful for businesses that experience varying levels of production or demand.