How to Calculate Fixed Cost per Unit

Fixed Cost per Unit

Fixed cost per unit is calculated by dividing the total fixed costs of business by the number of units.

A business has 86 per unit in variable costs and 120,000 per year in fixed costs. The business operates at a markup of 40%. What is the selling price when demand and production is 1,000 units and 3,000 units.

Fixed Cost per Unit at 1,000 units

The fixed costs are 120,000 and the fixed cost / unit = 120,000 / 1,000 = 120 per unit.
The total cost of a unit at this level of activity is 86 + 120 = 206.
Operating at a markup on cost of 40% the selling price would need to be 206 x 140% = 288.40

Fixed Cost per Unit at 3,000 units

The fixed costs remain at 120,000 and the fixed cost / unit = 120,000 / 3,000 = 40 per unit.
The total cost of a unit at this level of activity is 86 + 40 = 126.
Operating at a markup on cost of 40% the selling price would need to be 126 x 140% = 176.40

This example demonstrates the importance of fixed costs and the economies of scale achieved with higher levels of production

Last modified September 12th, 2017 by Team

You May Also Like