Product cost per unit is a figure used by businesses to determine the actual cost of a single unit of product. Product cost per unit includes all variable and fixed costs. Fixed costs include those items that a business must pay no matter how many goods or services are sold or offered by the business. Examples of fixed costs include insurance, the building lease and the cost of the machine used to produce the products. Variable costs include those items that change with the number of products sold or offered. Examples of variable costs include sales wages, cost of maintaining inventory and raw materials used to make the product. If you know some basic information about the businesses total cost, you can calculate the product cost per unit.

## Step 1.

Determine the total fixed costs for the businesses. For example, assume the total fixed costs for the business in 2009 were \$25,000

## Step 2.

Determine the total variable costs for the business over the same time period. For example, assume the total variable costs for the business in 2009 were \$50,000.

## Step 3.

Add the total fixed cost from Step No. 1 to the total variable cost from Step No. 2. Continuing the same example, \$25,000 plus \$50,000 equals \$75,000.

## Step 4.

Determine the total number of units produced during the same period of time. For example, assume the total number of units produced in 2009 was 1,000 units.

## Step 5.

Divide the total cost figure from Step No. 3 by the units produced figure by Step No. 4. Continuing the same example, \$75,000 divided by 1,000 equals \$75 per unit. This figure represents the product cost per unit.