If you’re selling products, you’ll need to calculate your selling price per unit. This will ensure that you’re making a profit on each sale. To calculate your selling price per unit, you’ll need to know your cost per unit and your desired profit margin. Once you have this information, you can use a simple formula to calculate your selling price per unit.
- Determine the total cost of all units purchased.
- Divide the total cost by the number of units purchased to get the cost price.
- Use the selling price formula to calculate the final price: Selling Price = Cost Price + Profit Margin.
How to calculate the selling price per unit
To determine the selling price per unit of a product, you will need to know a few details about it. Do the variable cost per unit and contribution margin per unit calculations first. Additionally, you need to be aware of a product’s net sales and total variable costs. To determine the selling price per unit, follow these steps:
1. Calculate the variable cost per unit
Each product has production costs, which can be either fixed or variable. A fixed cost remains constant regardless of how many products are produced. For instance, a manufacturer must pay building rent regardless of how many products they produce each month. However, a variable cost varies according to how many products are produced over time. As an illustration, a pen manufacturer uses ink in each pen they produce. They will need to spend more money on ink in February if they produce more pens in February than they did in January.
You must figure out your total variable costs in order to calculate the variable cost per unit. This information is available on your company’s income statement, or you can manually calculate it by totaling all of the variable costs over a specified period of time. Divide the total variable costs by the number of units produced during that same time period once you have calculated them. For instance, if you produced 500 scarves in a month and spent $2,500 in total, your variable cost per unit would be $5.
2. Determine your net sales
Net sales are the total amount of money a company has made from selling a product over a specific period of time, less allowances, discounts, and returns. Net sales are typically shown on the first line of an organization’s income statement. You can also figure it out manually by adding up all of the revenue a business generated over a certain period of time, like a month, and taking away any allowances, discounts, and returns.
Any price cut a customer receives as a result of an item’s flaws or defects counts as an allowance. An illustration of this would be if a customer bought a soup can with a dent in the lid and the retailer charged the customer nothing for it. 85 instead of $0. 99.
Customers receive discounts from businesses when they pay less than the average selling price per unit, such as during sales or with coupons. If a customer returns an item to the store they bought it from and gets their entire purchase price back, they received a refund. The company’s net sales would be reduced in all of these circumstances.
3. Find the contribution margin per unit
The profit generated by a single unit of an item when it is sold is known as the contribution margin per unit. For instance, when a DVD is sold to a customer, a portion of the price is money that the business has not yet spent on variable costs for the good. The contribution margin is sometimes called gross operating margin.
The contribution margin is calculated by deducting variable costs from net sales. For instance, the contribution margin for a watch company in August would be $4,000 if variable costs were $7,000 and net sales were $11,000. The contribution margin divided by the quantity of products a company produced over a certain period of time yields the contribution margin per unit. In the previous watch example, the contribution margin per unit would be $20 if the company produced 200 watches in August.
4. Add the variable cost per unit to the contribution margin per unit
In order to determine your selling price per unit, add your variable cost per unit and contribution margin per unit together. The cost of producing the product and the revenue from sales are both factored into the selling price per unit. A jacket’s selling price per unit would be $21 if its variable cost per unit was $14 and its contribution margin was $7.
What is the selling price per unit?
The sum of money a buyer will spend on one unit of a product is known as the selling price per unit. For instance, the selling price per unit for a company that produces books would be the amount that a customer would pay for one book. The cost of producing and shipping the product, the rent for a storefront to sell it in, and the company’s profit margins are all common components of the selling price per unit.
When determining the selling price per unit, businesses take into account both the cost of producing an item and the required profit. In order to determine whether a product is still making a profit, they can also monitor the selling price and compare it to the costs of production. Based on this knowledge, businesses can alter how they produce or market the product.
Selling price per unit examples
Here are two examples of the selling price per unit:
Example 1
Larrys Lighting makes floor lamps. Finding their variable cost per unit would be the first step for Larrys Lighting if they wanted to determine the selling price per unit for their most popular item, Floor Lamp G. In the month of October, Larrys Lighting discovered that they spent $12,000 on variable costs for Floor Lamp G. They manufactured 800 Floor Lamp G units in October, so their variable cost per unit would be $15 (12,000/800).
Larrys Lighting next determines their net sales for October. When allowances, discounts, and returns are subtracted, they discover they earned $20,000. They then calculate the contribution margin by deducting the variable costs from their net sales. The contribution margin for Floor Lamp G would be $8,000 (20,000 – 12,000), and the contribution margin for each unit would be $10 (8,000/800).
The variable cost per unit of $15 is added to Larrys Lighting’s contribution margin per unit of $10. The selling price for Floor Lamp G is $25 per unit.
Example 2
To determine the selling price of a chocolate bar, Camelias Chocolates must determine the variable cost per unit of producing the chocolate bar. According to Camelias Chocolates’ income statement, they produced 6,000 chocolate bars in March, with variable costs of $9,000 and net sales of $12,000.
Camelias Chocolates calculates their variable cost per unit as $1. 50 by dividing their variable costs (9,000/6,000) by the number of units. Then, by deducting their variable costs from their net sales (12,000 – 9,000), they arrive at their contribution margin of $3,000 for the business. The company then discovers that its contribution margin per unit is $0 3,000/6,000, which is the contribution margin divided by the number of units, equals 50. Finally, they add the variable cost per unit and the contribution margin per unit to determine the selling price per unit (1 5 + 0. 5). The chocolate bar sold by Camelias Chocolates costs $2 per unit.
How to Find Selling Price – Easy Trick – With Cost Price and Markup
FAQ
What is the formula for unit pricing?
How to Calculate Unit Price. If the quantity and total cost are known, a straightforward formula can be used to determine the unit price. To calculate the unit price, simply divide the total cost by the number of units. Consequently, the unit price is determined by dividing the total price by the quantity.
How do you solve for selling price?
- Cost price = Direct Labor, Allocated Raw Materials, and Manufacturing Overhead.
- Selling price = Cost price x 1. 25 SP = 50 x 1. 25.
- Gross Profit is calculated as Total Revenue – Cost of Goods Sold with a Gross Profit Margin of Revenue.
