How to Calculate Average Cost Per Unit

Updated February 21, 2017

The average cost per unit determines how much you pay for the production of a single good, by taking into account all of the money spent in production. Look at fixed costs which do not change and variable costs which depend on the number of products made when calculating the total average cost. Consider fixed costs any expenditures which do not change in amount based on the number of goods made, for instance, building and equipment rental remains the same regardless if you make one or no products. Variable costs, such as overtime and labour, rely on the amount of products made.

Find the variable costs for your production by multiplying the total quantity by the ratio of cost to amount. For instance, if it costs you £19 to make every 100 widgets and you produced 1,000 widgets: 1,000 x ($30/100) = £195.

Add the variable costs to the fixed costs to find the total costs. For instance, if you spend £32 per day for rent and you make 1,000 widgets in a day: £195 + £32 = £227 per day total costs.

Divide the total cost by the quantity to calculate the average cost per unit. For the example: £227/1,000 = 20p per widget.

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