How is unit cost calculated?
A)Total units divided by total costs
B)Sum of all cost drivers
C)Total cost divided by equivalent units produced
D)Total of all costs incurred

Question

Quizplus · Accepted Answer

Unit cost is calculated by dividing the total cost of production by the equivalent units produced. It is important to use equivalent units as some production processes may produce units of different sizes or types. This method of calculating unit cost helps to provide a more accurate estimate of how much it costs to produce each unit, allowing the company to make decisions about pricing and profitability. Option A divides total units by total costs and does not consider the size or type of units produced. Option B sums all cost drivers, which may not provide enough detail on specific costs per unit. Option D simply adds up all costs incurred, but does not give insight into costs per unit.

How Is Unit Cost Calculated