What Is a Unit Cost?

Unit cost is the average cost of producing a unit product. It is calculated by dividing the total cost incurred by an enterprise in producing a certain product by the output. Unit cost is an indicator that reflects the level of cost. The actual unit cost is compared with the planned unit cost, compared with the historically advanced level of unit cost, and compared with the unit cost of the same product of other enterprises, you can find the gap and find ways to tap the potential to reduce costs. ^[1]

unit cost

Enterprises usually compile the unit cost table of major products on a monthly basis. The cost items reflect the actual average unit cost of the main product in the previous year, the planned unit cost for the current year, and the actual unit cost for the current period. ^[2]

Unit cost for analysis

First, determine the

Total unit cost

Total cost refers to the total cost incurred by an enterprise to produce a certain product or provide a certain type of labor. According to different methods of cost accounting, and according to its cost collection and allocation procedures, the total product cost is the sum of the production materials and labor costs consumed to produce a certain variety or quantity of products. Through the calculation and analysis of the total cost, you can understand the total expenditure during the calculation period, and compare the total cost with income, profit, and net profit to obtain a meaningful analysis index. Total cost savings or overruns are often important for analyzing the completion of cost plans. Combining total cost and unit cost enables a comprehensive cost analysis. ^[2]

Unit cost

Least Unit Cost: The method of determining the batch size, that is, the quantity of each production or purchase, occurs when the value of the holding cost and the order cost are close. ^[2]

Unit cost unit variable cost

Variable cost refers to the cost that the total cost changes in proportion to the change in business volume. The variable cost here is in terms of the total cost of the total business volume. From the perspective of the changing cost of unit business volume, it is fixed, that is, it is not affected by changes in business volume.

Unit variable cost = variable cost / business volume, it is fixed, that is, it is not affected by changes in business volume. ^[2]