Cost per unit

Definition

Cost per unit is the total expenditure incurred to produce, store, and sell one unit of a product. It plays a crucial role in pricing decisions and profitability analysis in managerial accounting.

5 Must Know Facts For Your Next Test

1. Cost per unit calculation includes direct materials, direct labor, and manufacturing overhead costs.
2. Activity-Based Costing (ABC) allocates overhead more precisely by using multiple cost drivers.
3. Variable costing includes only variable manufacturing costs in the cost per unit.
4. Absorption costing includes both fixed and variable manufacturing costs in the cost per unit.
5. Understanding cost behavior (fixed vs. variable) helps in accurately determining the cost per unit.

Review Questions

• What components are included in the calculation of cost per unit?
• How does Activity-Based Costing improve accuracy in determining cost per unit?
• What is the difference between variable costing and absorption costing when calculating cost per unit?

Related terms

Activity-Based Costing: A method that assigns overhead costs to products based on multiple activity drivers.

Variable Costing: A costing method that includes only variable production costs as product costs.

Absorption Costing: A costing method that includes both fixed and variable production costs as product costs.