Unit-level cost

Definition

Unit-level cost refers to the expenses incurred for every single unit of production. These costs vary directly with the number of units produced.

5 Must Know Facts For Your Next Test

1. Unit-level costs include direct materials, direct labor, and variable manufacturing overhead.
2. They are a key component in calculating total product cost using Activity-Based Costing (ABC).
3. Understanding unit-level costs is crucial for determining product pricing and profitability.
4. These costs are considered variable because they change with production volume.
5. Accurate tracking of unit-level costs helps in making informed managerial decisions regarding cost control and efficiency.

Review Questions

• What are some examples of unit-level costs?
• How do unit-level costs affect product pricing decisions?
• Why are unit-level costs classified as variable?

Related terms

Activity-Based Costing (ABC): A costing method that assigns overhead and indirect costs to related products and services.

Variable Costs: Expenses that change in proportion to the activity level or volume of output.

Absorption Costing: A costing method that includes all manufacturing costs - direct materials, direct labor, and both fixed and variable manufacturing overhead - in the cost of a product.