Understanding the cost of each unit you produce is essential to ensure your business remains profitable. To calculate the cost per unit, add all of your fixed costs and all of your variable costs together and then divide this by the total amount of units you produced during that time period. By having a firm understanding of these costs, you can more accurately determine your minimum production requirements, the amount of markup you should add to each unit and what sorts of volume discounts you can offer to your biggest clients.
A unit cost is the total expenditure spent to produce an individual unit of goods or services. This is determined by adding fixed costs with variable costs for production or service delivery. It is usually simpler to calculate the cost of total production per run or period of time and then divide the amount by the number of units produced.
Fixed costs represent expenses that stay constant no matter how many units you produce. Rent on a building, for example, needs to be paid whether you are producing anything or not and is therefore a fixed cost. Property tax, insurance, computer systems and other administrative expenses can also be considered fixed costs, as are the salaries of office staff who aren't involved in production and the cost of overhead. To calculate the monthly cost of equipment purchases, divide the cost of the equipment by its estimated life cycle.