There are many situations for which a business may need to calculate mean cost. The word "mean" is the same as "average." If a business manufactures and distributes a product, it may wish to compare how its costs change when a new production method is attempted. To compare costs, it may want to find the mean cost of several production lines using the old method and several using the new method. Even within one method, the costs of every production line will not necessarily be the same. Finding mean costs gives a measure of comparison between the methods.

Step 1.

Set the parameters of your calculation. For example, decide which production lines will be used in your calculation and during what time periods. Break down which costs will be combined to find an average. For example, you may wish to calculate using the daily costs of Production Lines 1, 2 and 3 for 90 days, and repeat this for each production method. Using this data you could compare the mean daily cost of any production line using both methods.

Step 2.

Add together the raw data in your calculation. In this example, you would add together the daily production cost of all three production lines for 90 days for method 1 and for method 2. Your raw data, for example, might give you a result of a total cost of $270,000 for method 1 and $202,500 for method 2.

Step 3.

Divide the method totals into a mean per production line, per day amount. For example, for method 1, you would divide $270,000 by 90 days, with the result of $3,000 mean cost per day. You would further divide this by 3 to get the result of $1,000 mean cost per production line per day. For method 2, you would divide $202,500 by 90 days and get a mean cost per day of $2,250. After further dividing this result by 3, you would get the result of a mean cost of $750 per production line per day.