← Metrics Reference | Cost Phase 3

Cost per Unit

Total production cost divided by number of units produced — the foundation for pricing, margin analysis, and improvement ROI.

Formula

Total Production Costs ÷ Units Produced

Benchmarks

World-class: At or below standard cost Good: Within 5% of standard cost Typical: 5–15% above standard cost Poor: >15% above standard cost

What Is Cost per Unit?

Cost per Unit is the total cost of producing one unit. It includes direct materials, direct labour, variable overhead, and allocated fixed overhead. It is the basis for pricing decisions, margin analysis, and quantifying the return on improvement projects.

The Formula

Cost per Unit = Total Production Costs ÷ Units Produced

Where Total Production Costs typically include:

  • Direct materials
  • Direct labour
  • Variable overhead
  • Allocated fixed overhead

Data Requirements

SourceRequiredWhat You Need
Machine DataYesProduction count
ERPYesMaterial costs, labour rates, overhead allocation, cost accounting data

Cost per Unit is a Phase 3 metric — it requires ERP integration for cost data alongside production counting.

Why It Matters

  • Pricing decisions — cost-plus pricing needs an accurate cost base
  • Margin analysis — profitability assessment per product
  • Improvement ROI — quantifies savings from efficiency gains (e.g. reducing scrap, downtime, or labour)
  • Make versus buy decisions — comparison to external options

Best Practices

  • Calculate at the product level for accurate costing
  • Track trends to identify cost escalation early
  • Use to validate improvement initiatives — did the OEE improvement actually reduce cost per unit?
  • Compare actual to standard cost for variance analysis