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Cost per unit

Are you wondering what the cost per unit is? Do you want to know what the difference between the cost per unit and variable cost per unit is? Or maybe do you want to know the formulas for calculating both these costs? You are in the right place! Here you will find the answers to all these questions.

A little introduction – first, we want to focus on the cost per unit. You will know what it is and how you can calculate it with the use of the formula. Then we want to focus on the variable cost per unit. After a clear explanation, you will also see the formula for this type of cost. So let’s start!

Cost per unit – what is it?

The cost per unit is also known as the unit price. What does this term mean? Some products are sold in packages composed of more than 1 item. On the other hand, some products are sold in packages composed of more than 1 particular unit of weight too. If you want to know how much you will pay per 1 item or per 1 particular unit of weight, you need to know the cost per unit.

Cost per unit – the formula

So how can you calculate the cost per unit? You need to know the unit price formula. You can find it down below:

The total cost / the number of units = the unit price per item

So you need to divide the total cost by the number of units to get the cost per unit. It’s a quite simple calculation, isn’t it?

Have a look at the example: You want to buy hair scrunchies. They are packaged in three. The price per whole product is 7$. So how much will you pay per 1 scrunchie?

7$ / 3 = 2.33$

So the cost per unit in this case is equal to 2.33$.

Variable cost per unit

If you know what the cost per unit is and how the formula for unit price looks, it is time to learn what the variable cost per unit is too. The variable cost per unit is the price which you need to pay to produce 1 item.

Variable cost per unit – the formula

So how does the variable cost per unit formula look? Let’s see:

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

So this time you also need to divide two numbers, but in this case the amount of the total variable cost by the number of units.

Have a look how it works in practice. For instance, you produce pencils. The total variable cost per one month is 20.000$. You produce every month 50.000 pencils. So what is the variable cost per unit?

20 000$ / 50 000 = 0.4$

So the variable cost per unit in this example is equal to 0.4$.

We hope that now you know what the cost per unit and variable cost per unit are. So it is time for trying these formulas in everyday life. Follow the steps from this article and make your own calculations.

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