Cost per unit

Do you want to calculate the cost per unit, but do not know how to make it? Are you looking for instructions? Or maybe are you not sure what the cost per unit exactly is? Here you are! You will find here everything about the cost per unit. It is your compendium about the cost per unit. Compendium where all information is explained in a clear, understandable way. We promise, the topic of the cost per unit can be simple. Just read and see for yourself.

What exactly will you find here? We will show you two different ways to calculate the cost per unit. It means – we are going to show you how you can calculate cost per unit on your own and using a special cost per unit calculator. Theory is also a must. We will tell you a little bit about the cost per unit at all. Maybe will you learn something new about it?

So it is time to move on to the main parts of our article. We will start by showing you methods for calculating cost per unit. Then we will explain to you the definition of cost per unit. The last part will contain practical examples. So let’s start.

Formula for variable cost per unit

We will start with a formula for variable cost per unit. Knowing how to calculate variable cost per unit and total variable cost at all is needed to calculate the cost per unit later. Firstly, we want to focus on variable cost per unit, then we will move on to the total variable cost. So what is a formula for variable cost per unit?

To calculate variable cost per unit you need to divide total variable costs by the number of units. It looks as follows:

Variable cost per unit = total variable costs / the number of units

As you can see, this formula is not complicated. You just need to know two pieces of information to calculate variable cost per unit. So let’s see this formula in practice:

Suppose total variable expenses amounted to 500 000 $ and the production quantity is 20 000 units. So you need to divide 500 000 by 20 000. It gives 25 $. The variable cost per unit in this case is equal to 25 $. You can see this calculation also down below:

500 000 $ / 20 000 = 25 $

On the other hand, if you know the variable cost per unit you can simply calculate the total variable costs, which will be needed to calculate the cost per unit. For instance, if you know that the variable cost per unit is equal to 15 $ and the company produced 100 units of this product, you can multiply these two numbers to get the total variable cost. Let’s see:

Total variable cost = variable cost per unit * the number of units 

So in this example, you need to multiply 15 by 100. The equation is as follows:

15 $ * 100 = 1 500 $

So the total variable cost in this case is equal to 1 500 $.

So if you know how to calculate variable cost per unit and the total variable cost, we want to show you something that can make your calculations quicker and easier. It means all calculations – variable cost per unit, total variable cost or even cost per unit. If you want to know what it is, keep reading. We promise – it will make your life as a company owner so much easier.

Cost per unit calculator

Imagine a special tool which can calculate variable cost per unit, total variable cost or cost per unit for you in just a second. Without your own calculation, without wasting time, without mistakes. It sounds amazing, isn’t it? But… You do not have to imagine it. We have for you this special tool. It means cost per unit calculator.

What is the cost per unit calculator exactly? As we mentioned before, it is a special tool. To be more specific, it is an online application which enables calculations of cost per unit but not only. This calculator can also calculate variable cost per unit or total variable cost. It is an invaluable help for every company owner.

How does our cost per unit calculator work? Cost per unit calculator is based on a cost per unit formula. It also contains variable cost per unit formula or total variable cost formula. Generally, formulas are a base of our cost per unit calculator. Thanks to them, the calculator can calculate the result correctly and in less than a second!

How to use our cost per unit calculator? Just pick what you want to calculate, for instance, cost per unit, enter the necessary data and click the ‘calculate’ button. That’s all. You do not have to do anything more. Your result will be shown in a flash. It sounds easy, isn’t it? We are sure that all of you can use our app without any problems. Our main goal was to make cost per unit calculator as intuitive as it is possible. And… We managed to do it.

What more can we say about our cost per unit calculator? We gathered here its advantages in a nutshell. Cost per unit calculator:

  • Enables calculating of any cost (cost per unit, variable cost per unit, total variable cost, etc.),
  • Saves your time – it will calculate your result in less than a second,
  • Gives you an accurate result – thanks to a special algorithm contains different formulas, for instance, cost per unit formula,
  • Is a totally free tool – we do not charge any fees for using it.

If you know a little about the cost per unit calculator, we can move on to the most theoretical part of this article. It means, it is time for some definitions. So let’s see.

What is variable cost per unit

We gave you a formula for variable cost per unit in the previous part of this article, but we did not explain what it is exactly. That’s why we start our definition part with this term. Then we will give you the definition of cost per unit too.

So what is the variable cost per unit? Variable cost per unit is defined as a production cost for each unit. This cost is related to the changes in the quantity of output. If we talk about the variable cost per unit, it is needed to mention the total variable cost too. Why? We want to show you the difference between these two terms.

So what is the total variable cost? Simply put, total variable cost can be defined as all variable costs, which may change in the proportion to the output or the production of units. What are the examples of variable cost? For instance, variable costs in a company are wages or production taxes. The total variable cost is used to analyze the overall costing and profitability of a particular company.

What is the biggest difference between the variable cost per unit and total variable cost? Variable cost per unit remains constant with respect of the activity level. In turn, the total variable cost is strictly dependent on the activity level. It means the total variable cost increases and decreases when the activity level changes.

So if you know a little about the variable cost per unit and the total variable cost, we can move on to the cost per unit. It is time to show you the definition of cost per unit. So what is cost per unit? The simplest cost per unit definition is money, which a company needs to spend on producing one unit of the product it sells.

You know what does cost per unit mean, but we want to tell you one more thing – what is the cost per unit called? Of course, the principal name is just cost per unit. Sometimes the cost per unit is called in other ways. Other names for cost per unit are cost of goods sold or cost of sales.

At the end, we want to tell you a little about the incremental cost per unit produced. The incremental cost per unit is how much money a company needs to spend to produce an additional unit of product.

We hope all these definitions will help you better understand the topic of cost per unit. We gathered all of them in one place to make a little dictionary for you. You can come back here, wherever you want to remind yourself.

After this theoretical part we can finally move on to practice. We will show you a formula for calculating cost per unit and practical examples with its use. So let’s see.

How to calculate cost per unit

At the beginning of this article we showed you how to calculate the variable cost per unit, so now it is time to show you how to calculate cost per unit. To make cost per unit calculations you need a formula. You can find it down below, have a look:

Cost per unit = (total fixed costs + total variable costs) / total units produced

So as you can see, to calculate the cost per unit (both on your own or using a cost per unit calculator) you need to know three things:

  • Total fixed costs – fixed costs mean costs, which are constant all the time. Fixed costs are, for instance, annual salaries or property taxes,
  • Total variable costs – variable costs mean cost, which change during the time. They depend on the number of units produced. Variable costs are, for instance, labor costs or material costs,
  • Total units produced – it is the number of units, which you produced during a particular period, for instance, a month.

So let’s see this formula in practice. Here is the example.

The X company produces candles and sells them to customers. Every month this company produces 1 000 candles. The company hires 3 employees. Every employee earns 5 000 $ per month. Then, the company also pays a rent for an office space in the amount of 1 000 $. So 16 000 $ is the total fixed cost for this company.

During this month, the company X hires also another employee to make new fragrances of candles. It is a cost of 3 000 $. So the variable cost is 3 000 $.

All costs, it means the total fixed costs and the variable costs, are equal to 19 000 $. So now you need to divide this number by the number of units produced, in this case 1 000. Cost per unit in this case is equal to 19 $. The company X must sell each candle for more than 19 $ to make a profit.

Of course, you can get the result also using the cost per unit calculator. You just need to enter the total fixed costs, the total variable costs and total units produced. All calculations will make a cost per unit calculator for you. It will be helpful, especially when it comes to the bigger, not round numbers. Calculating on your own in such a case could be problematic. With our cost per unit calculator you can make calculations without any effort, in just a few minutes. Your accurate result will be ready in less than a second.

How to determine the cost per unit

You know now how to determine the cost per unit on your own or using our cost per unit calculator. At the end of this article we want to show you also another method to calculate the cost per unit. So how to determine the cost per unit in another way?

To determine the cost per unit you can also use cost per unit excel template. Thanks to this solution you can put all costs (fixed and variable costs) and the number of units produced in the table in excel and then use an excel formula to calculate cost per unit. Sometimes it can be really helpful to make a settlement like this in one place, especially when it comes to controlling all costs in a company.

Do you prefer to have everything on paper? Don’t worry, it is also a solution for this. We know sometimes it is better to see everything on a paper, before your eyes. You can use a special cost per unit worksheet. You can fill in it on a computer and then print it or just fill in it manually, after printing cost per unit in cost sheet.

We are coming close to the end of this article. We can say, to the end of this compendium about the cost per unit. We hope that now you know what the cost per unit is, how to calculate the cost per unit and how to use the cost per unit calculator to make your calculations easier. 

So it is time to make your move. Use this knowledge in practice, for instance, to calculate the cost per unit for electricity or cost per unit multifamily apartment.

At the end, we want to show you FAQ. You can find here the most important, frequently asked questions with answers. It is the topic of cost per unit in a nutshell. Have a look:

  1. How cost per unit is calculated? The cost per unit is calculated by adding the total fixed costs and the total variable costs and then dividing by the number of units produced.
  2. How to calculate cost per unit of product? The cost per unit of product you can calculate using this formula: Cost per unit = (total fixed costs + total variable costs) / total units produced. You can also use a cost per unit calculator to calculate the cost per unit of product.
  3. How much does it cost per unit of electricity? It depends on your energy price plan and region you live in. The average cost per unit of electricity in 2020 is 13.19 cents.
  4. How much does gas cost per unit? In this case it also depends on your plan and region you live in. The average gas cost per unit in 2020 is 2.126 cents.
Published: 12/2/2020 Modified: 12/2/2020