How to Calculate the External Cost Per Unit of Production

Save

According to British newspaper The Times, production costs are made up of direct costs and indirect costs. The former are costs associated with raw materials and labor, while the latter are overheads, such as rent and electricity bills. Accountants Jerry J. Weygandt et. al, who refer to production units as "physical units," claim you can calculate the cost per unit by using a process costing system.

  • Count the number of completed physical units---which are products ready for market---created during the accounting period. Write this down as value A.

  • Count the number of incomplete physical units---which are units still requiring work---begun during the accounting period. Write this down as value B.

  • Add value A to value B. Write this down as value C, which represents total production volume for the accounting period.

  • Work out the total direct costs incurred during the accounting period. Write this down as value D.

  • Work out the total indirect costs incurred during the accounting period. Write this down as value E.

  • Add value D to value E. Write this down as value F, which represents total production costs.

  • Divide value F by value C to calculate the external cost per unit of production.

References

  • Photo Credit Felipe Dupouy/Lifesize/Getty Images
Promoted By Zergnet

Comments

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!