Look at procurement processes, mode selection, and supply chain network design. Use technology and analyse data to optimise freight. Plan, execute, and optimise your transportation network with effective communication to all the involved parties. It is important to build a logistics platform with a third-party logistics provider that has the required number of people, processes, and technology to report costs and service performance. 5 Strategies to Minimise Cost Per Unit Improve Logistical Strategy At the bare minimum, a company should at least cover its breakeven costs. This is the basis for determining the net profit of the company.īased on this difference between its price per unit and cost per unit, the company can determine how much discount it can offer on its SKUs as a part of its marketing campaigns. The difference between the market price and unit cost of a product or a service determines its profit per unit. All of its SKUs are marked up over the cost per unit to make up its market price per unit. Price per unit refers to the market price at which the company wishes to sell its products and services. The company must achieve at least a breakeven level of revenue so that it wont incur losses. This total cost per unit refers to the breakeven level. A manufacturing company must cover at least the total cost per unit. Difference Between Cost Per Unit and Price Per Unit Cost Per UnitĬost per unit refers to the sum of fixed and variable costs per unit. If there is an increased output, total variable costs will increase proportionately but the fixed cost per unit will come down. If there is a reduction in the volume of units produced, total variable costs will reduce but the fixed cost per unit increases as the denominator decreases. The total number of units produced in a year is 20,000.Ĭost Per Unit = (Total Fixed Cost/ Total Output) + Variable cost per unit = 1,00,000/ 20,000 + Rs 3= Rs 5+Rs 3 which makes the cost of production Rs 8 per unit. Cost Per Unit Formula Example 2: Let Total Fixed Costs be Rs 1,00,000.In a year, 50,000 units are produced.Ĭost Per Unit= (1,00,000+2,50,000)/50,000 which makes the cost of production Rs 7 per unit. Cost Per Unit Formula Example 1: Let the Total Fixed Cost be Rs 1,00,000.The cost per unit is (Total Fixed Costs + Total variable Costs)/Total number of units produced. Their sum must be divided by the total number of units produced to derive the unit cost of production. You must ascertain the total fixed cost and the total variable cost of production to calculate the cost per unit. How to Calculate Cost Per Unit (with Examples)? You must calculate the cost per unit for all the various SKUs. These measures will help in space rationalisation and price optimisation with the key goal of improving cash flows, increasing return on invested capital, and boosting operating margins.Ī large organisation can lower unit costs through economies of scale and optimise the market offering price. If your cost of production is accurate, you can undertake SKU rationalisation and decide which products to keep and discontinue. It helps you amplify the SKU (stock-keeping units), which are your highest profit generators, and assists in boosting customer loyalty and satisfaction.Īlso, if you know the different costing elements, you can work towards reducing the different components. Knowing the cost of production will let you make a well-informed decision about the markup value. It also helps you to price your products appropriately. EPS is a key performance indicator used by shareholders to assess performance. Vishal Gupta, Founder, Gynoveda Contact Us Now Importance of Cost Per UnitĬalculating cost per unit is important because it is a key determinant of net profit per unit or earnings per share (EPS). Both can be reduced by employing the cheapest labour or outsourcing production to the most efficient manufacturer. Examples of this are direct materials and direct labour. Variable Costs: Variable costs vary based on the volume of output. Examples include capital equipment, rent, insurance, etc. In order to calculate cost per unit, the first step is to ascertain operational profitability.įixed Costs: Fixed costs are those that stay the same irrespective of the volume of production. They are classified into two groups – fixed costs and variable costs. There are various elements to calculate cost per unit. It is also known as the cost of goods sold. Payment Based on Utilised Storage SpaceĬost per unit is the sum of all the expenses that a company incurs to produce, store and sell one unit of a product or a service.How WareIQ Helps Reduce Fulfillment Costs Per Unit.Minimise the Volume of Wasted Inventory, Reshipments, and Cancellations.Difference Between Cost Per Unit and Price Per Unit. How to Calculate Cost Per Unit (with Examples)?.
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