Unit cost and cost of production

The unit cost of an output or product is the usually the unit cost of production including the variable cost component although businesses can include some or all fixed cost components in the unit cost depending on the nature of the business and operations. Both forms are acceptable and the unit cost should be further broken down to understand the major input costs in the operations. When only the variable costs of production are included it is referred to the marginal cost of production. This is also an important measure to understand the split between variable and fixed costs, and is usually an important factor in a swot analysis .

At times unit costs can't be measured accurately due to the nature of the inputs such as volatile energy costs or material costs, transport costs, plant performance, and waste levels. When coming across an estimate for unit costs it is important to understand the assumptions behind the input costs that make up that number. Unit costs are usually used in graphing the cost curves. for different products or production facilities in commodity industries. Cost curves are useful in comparing production unit costs among competitors and or other production facilities in the organization.

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