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# Total Cost per Unit

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Total Cost Per Unit

Total Cost per Unit or Units Cost is the cost of producing, storing or selling one unit of product or service. Unit Costs include Direct Materials Cost (DM) per unit and Conversion Costs (CC) per unit:

Total Cost per Unit = Direct Materials Cost (DM) per unit + Conversion Costs (CC) per unit

Direct Materials Cost (DM) per unit is the total amount of all costs of raw materials (also called productive materials, raw materials, raw stock, stores) and specialized parts and sub-assemblies that are used in the production process divided by number of units produced. The formula to compute Direct Materials Cost (DM) per Unit is as follows.

Direct Materials Cost (DM) per Unit = Total cost of raw materials / Number of Units Produced

Conversion Costs (CC) per Unit is the cost of converting direct materials into finished products. CC per Unit is the total amount of all costs for direct labor and overhead expenses divided by number of units produced. Overhead expenses include depreciation costs and such administrative expenses as rent, heat and lights, insurance, etc. The formula to calculate Conversion Costs (CC) per Unit is below:

Conversion Costs (CC) per Unit = (Direct Labor Cost + Overhead Expenses)/ Number of Units Produced= Direct Labor Cost + Depreciation + Rent + Heat and Lights Expenses + Insurance Costs + other Overhead and Administrative Expenses) / Number of Units Produced

Direct Labor Cost can be calculated by the formula below (it is also used to calculate Prime Cost)

Direct Labor Cost = Wages + Other Direct Labor Costs = Job Time * Wage + pension contributions + employee insurance + payroll tax + other direct labor costs

Using the formula above for computing Direct Labor Cost the full formula to calculate Conversion Costs (CC) per Unit could be presented as:

Conversion Costs (CC) per Unit = (Direct Labor Cost + Overhead Expenses) / Number of Units Produced= (Wages + Other Direct Labor Costs + Depreciation + Rent + Heat and Lights Expenses + Insurance Costs + other Overhead and Administrative Expenses) / Number of Units Produced = (Job Time * Wage + pension contributions + employee insurance + payroll tax + other direct labor costs  Depreciation + Rent + Heat and Lights Expenses + Insurance Costs + other Overhead and Administrative Expenses) / Number of Units Produced

Total Cost per Unit is used in accounting to determine profit and selling price of product or service, calculate Cost of Goods Sold (COGS), Revenue (REVs), Gross Profit Margin, Operating Margin. Total Cost per Unit depends on the number of units produced because overhead costs are usually fixed. So Total Cost per Unit can be never calculated with precision, however, of course, your accounting department should tend to calculate it as precise as possible.

• Add custom field “Cost of raw materials ” or “Direct Material” with Code “cf_cost_of_raw_materials”
• Add the cost for all materials produced or purchased to make a finished product

• Add custom field “Number of Units Produced” with Code “cf_number_of_units_produced”
• Add custom field “Direct Materials Cost (DM) per Unit” or “DM per Unit” with Code “cf_dm_per_unit “ and the formula:
• \$cf_cost_of_raw_materials / \$cf_number_of_units_produced

• Add custom field “Direct Labor Cost”  with Code “cf_direct_labor_cost”
• Add custom field “Overhead Expenses” with Code “cf_overhead_expenses” to display the total amount of costs for indirect materials, indirect labor and all other expenses, such as taxes, insurance, depreciation, rent, repairs, heat and lights.
• Note: you can create separate custom fields for all items associated with Overhead Expenses (indirect materials, indirect labor, taxes, insurance, depreciation, rent, repairs, heat and lights, etc.) and calculate Overhead Expenses automatically using the formula that would show the sum of all items for which you create separate custom fields. The example of such formula is below:

\$cf_indirect materials + \$cf_indirect labor + \$cf_taxes + \$cf_insurance + \$cf_depreciation + \$cf_ rent + \$cf_ repairs + \$cf_utilities

• Add custom field “Conversion Costs (CC) per Unit” or “CC per Unit” with Code “cf_cc_per_unit“ and formula:
• (\$cf_direct_labor_cost + \$cf_overhead_expenses) / \$cf_number_of_units_produced

Add custom field “Total Cost per Unit”. It will show the sum of two values used in custom fields “Direct Materials Cost (DM) per unit” and “Conversion Costs (CC) per unit”. The formula for custom field looks like this:

\$cf_dm_per_unit + \$cf_cc_per_unit

• On Task Tree select task group for which you need to display Total Cost per Unit and select “Custom fields options”
• Set the following custom fields settings for the custom fields listed below :
• “Cost of raw materials” (or “Direct Material”), “Number of Units Produced”, “Direct Labor Cost”, “Overhead Expenses”

• - In “Settings for” select “This task group”
• - select “Enable”
• - in “Aggregated (for task group)” field select “Sum” from drop-down list and the corresponding custom field name:

• Select custom field “Direct Materials Cost (DM) per Unit” (or “DM per Unit”), “Overhead Expenses” (if it is calculated by the formula), “Conversion Costs (CC) per Unit” and “Total Cost per Unit” and set the following settings for these custom fields:
• In “Settings for” select “This task group”
• select “Enable”
• select “Calculated by custom field formula (for task group)”
• If you need to fill in some custom fields at task group level, e.g. “Number of Units Produced”, right click on task group, select “Custom fields options” and select “Edit” for the corresponding custom field
• To fill in the custom fields at the task group right click on task group and select “Edit”
• Total Cost per Unit on Task Tree

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