Cost Per Unit Definition Examples How To Calculate

Cost Per Unit Definition

Explanation

The company’s cost per unit helps measure the cost incurred to create or produce one unit of the product, and it is one of the crucial measures of cost for the company’s operation. This accounting measure includes all the types of fixed costFixed CostFixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. It is the type of cost which is not dependent on the business activity.read more and variable costs associated with the production of goods or provision of the services in the company. It is calculated by adding all the fixed costs related to the product, i.e., costs that do not change when the value of goods or the service produced is changed; and all the variable costs associated with the product, i.e., costs that vary when the value of goods or the service produced is altered and dividing the value with the total of units produced during that period.

Cost Per Unit Formula

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Where,

Total Fixed Cost: Total of costs which does not change in the company when there is a change in the number or amount of goods or the service produced.Total Variable Cost: Total of costs that change in the company when there is a change in the number or amount of goods or the service produced

A total number of the units produced: Quantity of total units produced during a particular period.

How to Calculate Cost Per Unit?

Firstly, the company should calculate the total amount of money spent on the fixed cost during the period by adding all the expenditures incurred on the fixed cost.After this, it should calculate the total amount of money spent on the variable cost during the period by adding all the expenditures incurred on the variable cost.Then, a value derived in step 1 should be added with the value calculated in step 2, i.e., the sum of total fixed and variable costs.After this total number of the units produced during that time is to be derived.Lastly, the sum of total fixed cost and total variable cost calculated in step 3 is to be divided by the total number of the units produced during the period as calculated in step 4 to get the figure.

Example

Difference Between Cost Per Unit and Price Per Unit

Cost per unit can be said to be the per-unit expenses incurred by the company to produce goods or services. In contrast, the price per unit can be said to be the per-unit price that the company charges from its customer against the goods or services sold. The difference between the cost and price per unit is the profit per unit earned by the company.

Calculation of Total Fixed Cost =$15000+$5000+$10000+$6000+$7000Total Fixed Cost = $43000 Calculation of Total Variable Cost =$75000+$55000+$27000Total Variable Cost = $157000 Total of Fixed Costs and Variable Cost = $ 43,000 + $ 157,000Total Fixed and Variable Cost = $ 200,000 Calculation of cost per unit = $ 200,000 / 10,000=$ 20 per unit

=$15000+$5000+$10000+$6000+$7000Total Fixed Cost = $43000

=$75000+$55000+$27000Total Variable Cost = $157000

= $ 43,000 + $ 157,000Total Fixed and Variable Cost = $ 200,000

= $ 200,000 / 10,000=$ 20 per unit

Importance

Calculating the cost per unit is essential for any company because it helps determine the selling price the company should charge to its customers. It is because generally, companies add up the percentage of the profits to derive the selling price.

It also shows how efficiently the business is running along with providing a dynamic overview of relationships among different essential factors of the company, such as its costs, revenues, and profits. So, identifying and analyzing the unit costsUnit CostsUnit cost is the total cost (fixed and variable) incurred to produce, store and sell one unit of a product or service. It is calculated by adding fixed and variable expense and dividing it by the total number of units produced.read more in the company is one of the quickest ways to know whether the company is producing its product efficiently or not.

Conclusion

Cost per unit helps measure the company’s cost to create or produce one product unit and plays an integral part in the organization’s work. It helps the company determine its selling price and show the efficiency of the operation of the business.