Cost per Unit Definition
The cost per unit (CPU) is calculated when a company produces a large number of identical products and needs to establish a fair price of sale with a positive income profit.
This information is then compared to budgeted cost information to see if the organization is producing goods in a cost-effective manner.
How to Calculate the Cost per Unit:
The cost per unit is derived and calculated from the variable costs and fixed costs incurred by a production process, divided by the number of units produced.
Typically, companies are looking to reduce the cost per unit to increase their profits. The most common way to do it is to reduce the variable cost and fixed costs using lean 6 six sigma techniques.
In other cases companies can reduce the cost per unit, increasing the number of units produced and maintaining controlled variable and fixed costs using lean manufacturing techniques.
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