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Unit pricing

Deduce the lowest margin by comparing commodities with different quantities and costs. Discover the pricing between two competitor batches of a product or the number of hours spent in a service. The total cost to create, store and sell one unit of a product or service is known as ‘Unit Cost’. This can also be referred to as ‘Cost of Goods Sold’ (COGS).

This metric includes all fixed and variable costs associated with the manufacturing of a product or service. Unit cost can be an important measure of a business’s operational analysis. Discovering and evaluating a business’s unit costs is one way to analyse if a product or service is being manufactured or provided effectively.

In some countries, price per unit information will be displayed on the price tag on a product. Alternatively, some service providers breakdown the cost per hour for the client to compare service solutions.

Variable and fixed unit pricing

A stable business will generally seek ways to minimize the overall unit cost of their products/services by reducing fixed and variable expenses. Fixed costs are expenses that do not change depending on how many units are produced. Just to name a few, there is rent, insurance, and equipment. Long-term leasing agreements can aid in the management of fixed costs such as storage and manufacturing equipment utilization.

Variable costs are determined by the amount of production generated. Direct labour costs and direct material costs are two types of expenses that are further segmented. Direct labor costs are the salaries paid to workers who are directly involved in the manufacturing process, whereas direct material costs are the costs of things purchased and used in the manufacturing/development process. Variable costs can be minimized by purchasing components from the cheapest supplier or outsourcing the manufacturing process to a more efficient manufacturer.

Financial accounts

The unit cost will be reported in the financial statements of a business. These reports are required for internal management analysis. Depending on the sort of business, the manner unit expenditures are reported varies. For businesses that manufacture goods, unit costs are more clearly defined, while unit pricing for service businesses might be a little unclear.

Both internal management and external investors scrutinize unit expenditures. These specific item expenses encompass all fixed and variable expenses directly related to the manufacture of a product, such as labour salaries, advertising fees, and the cost of operating machinery or storing products. Business owners/managers maintain a close watch on these costs to keep them under control and search for methods to reduce the unit cost. Typically, the larger the business grows, the cheaper the unit cost of production becomes. This reduction is attainable due to economies of scale. Producing at the lowest possible cost will enhance profits.

Breaking even

The unit cost can be indicated as the breakeven point. This is the lowest price at which a business will need to sell a product/service to avoid losing income.

Calculating the unit cost of production yields a breakeven point. This price is used as a starting point for determining a business’s market value. A unit must be sold for more than its initial cost to generate a profit.

Businesses can consider a variety of factors when determining the market selling price of a unit. Some businesses may have a high degree of indirect costs, requiring a higher price to cover all of the business’s costs.

The end-goal.

The end-goal of utilising this calculator is to allow you to compare the total quantity and total price of products/services and deduce the unit price along with the percentage and cost savings.

Necessary terms.

• Price: This is the value established for a product/service.

• Quantity: This is the extent, size, or sum of a product/service and is expressed as a numerical value.

• Unit Price: This is the valuation method to determine the true cost of one unit.

• Unit Price Saving: This is the cost difference between two different unit prices.

• Percentage Saving: This is the percentage difference between two different unit prices.

• Would Have Cost: This is the price of the first unit if it had the same quantity as the second unit.

• Saving: This is value saved between the unit that it would have cost and the second unit price.

The formula.

Unit Price (Option A)

• Unit Price (#1): UP#1

• Price (#1): PE#1

• Quantity (#1): QY#1

UP#1 = PE#1 / QY#1

Unit Price (Option B)

• Unit Price (#2): UP#2

• Price (#2): PE#2

• Quantity (#2): QY#2

UP#2 = PE#2 / QY#2

Unit Price Saving

• Unit Price Saving: UPS

• Unit Price (#1): UP#1

• Unit Price (#2): UP#2

UPS = UP#1 - UP#2

Percentage Saving

• Percentage Saving: PS

• Unit Price (#1): UP#1

• Unit Price (#2): UP#2

PS = 100 - ((UP#2 / UP#1) * 100)

Would Have Cost

• Would Have Cost: WHC

• Unit Price (#1): UP#1

• Quantity (#2): QY#2

WHC = UP#1 * QY#2

Saving

• Saving: SG

• Would Have Cost: WHC

• Price (#2): PE#2

SG = WHC - PE#2

Thank you for taking the time to interact with this calculator. Hopefully, this has provided you with insight to assist you with your business.