Unit cost

Unit costs are understood to be the cost of an object. It is mostly the cost of a product, a unit of measure or the cost of an order.

Definition / explanation

The unit costs show the costs of an individual good and depend entirely on the total costs and the number of units. They can be determined using the following formula:

Unit costs = total costs: number of units

In business administration, the unit costs are made up of the fixed unit costs (e.g. rent and electricity) and the variable unit costs (e.g. material). While the variable costs always remain the same, the fixed costs depend on the number of units.

Taking this into account, the following formula results for the calculation:

Unit costs = (total fixed costs: number of units) + variable unit costs

Since the fixed costs do not change, a lower number of units leads to higher unit costs, while a higher production volume causes them to decrease. In business administration, this effect is also called fixed cost degression.

Die Stückkosten, bestehend aus den variablen und fixen Stückkosten, sind in der BWL ein wichtiger Faktor zur Ermittlung der Lower price limit. Die dabei produzierte Menge ist ausschlaggebend für den Stückpreis und somit auch für den Gewinn eines Unternehmens.

Summary

• Unit costs show the cost of a single good
• depend on the total costs and the number of pieces
• Unit costs = total costs: number of units
• the higher the production volume, the lower the unit costs = fixed cost degression
• Unit costs are used to determine the lower price limit
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