Generally , we will find that all of us think in terms of total costs not the unit cost
However , there is a critical point which links between the total cost and the total volume of production or the level of activity
And it is an important point as the same as considering the total cost because the decision maker should have predictions about the volume of production or the level of activity in order to reach a suitable price to recover the cost and achieve profit which is the main goal of any organization
The unit cost is also called average cost which could be expressed by this equation Total manufacturing costs / no. of units manufactured = unit cost
Determining the unit cost is not only important for pricing but also important for other reasons such as calculating the cost of goods sold and cost of ending inventory which are critical items in the income statement which has an effect on the balance sheet and hence the financial results reported by the company to shareholders, the government and the banks
However , there is a critical point which links between the total cost and the total volume of production or the level of activity
And it is an important point as the same as considering the total cost because the decision maker should have predictions about the volume of production or the level of activity in order to reach a suitable price to recover the cost and achieve profit which is the main goal of any organization
The unit cost is also called average cost which could be expressed by this equation Total manufacturing costs / no. of units manufactured = unit cost
Determining the unit cost is not only important for pricing but also important for other reasons such as calculating the cost of goods sold and cost of ending inventory which are critical items in the income statement which has an effect on the balance sheet and hence the financial results reported by the company to shareholders, the government and the banks
And it has another important reason which is determining the cost per unit of different products and also the profitability of each different product which provides the management or decision makers by information to help them to know the high profitability items or products which they can invest more on it such as R&D or marketing
And which are the low profitability items or products for which they need to put plans to develop them to increase their profitability or to stop producing them
In our economy , we have 3 sectors
Manufacturing companies
( here , we are dealing with a tangible product) which purchase materials and components to convert it into finished goods could be sold
Such as , textile companies or food processing companies
Merchandising companies
Such as , textile companies or food processing companies
Merchandising companies
here , we are dealing with a tangible product ) which buy the product as a finished good and sell it without changing its basic form and in this sector , the chain of buying and selling the product includes ( the main companies , distribution to retailers or wholesalers )
Service sector companies
Service sector companies
a sector that produced an intangible product to the customer such as , consulting companies which provides advice or internet service providers
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