When it comes to pricing your products, many people struggle. Some may argue that pricing is one of the hardest parts of business. You have to consider your cost to make the product, how much you want to make in profit, and then how much the consumer will pay.

For example, let’s say you create candles that take two hours to make at a cost of \$5 in supplies. You want half the candle’s price to be your profit, so you wish to make \$3 per candle. Consumers may only be willing to pay \$2 for your candle, though.

How do you adjust your price then? Is it possible to still make a profit? What if you can not cut your costs? How do you balance these two factors? These are all important questions to ask when considering pricing changes.

This article will discuss some ways you can change prices without losing profits.

## definition of sales price per unit

The sales price per unit is also called the selling price per unit or the cost per unit. The sales price per unit is what a business pays for the product and then what they charge for the product.

This includes all expenses related to producing and selling the product, such as material costs, labor costs, and any other overhead expenses. A business also accounts for their mark-up when determining their sales price per unit.

Mark-up is the difference between what they pay for the product and what they sell it for. A higher mark-up means a higher cost per unit, which in turn means a lower sales price per unit.

Variable cost per unit refers to any expense that varies with each unit of output produced and sold by a business. These expenses include raw materials, semirough materials, indirect materials, indirect labor, and variable overhead expenses.

## definition of variable cost per unit

Variable cost refers to the cost of producing or purchasing a product that changes depending on the number of units produced or purchased. These changes are due to factors like materials, labor, and overhead.

For example, if a furniture store buys tables from a supplier at \$100 per table, but pays \$50 for each table it disposes of at the trash facility, then its variable cost for each table is \$100.

Variable costs are independent of the sales price per unit. If the sales price per unit increases, then the amount spent on producing or purchasing that unit increases as well.

When looking at profit, however, variable costs are excluded. Profit is calculated by taking the sales price per unit and subtracting variable costs per unit. If there are no other external factors affecting profits, then less units sold means more profit made.

Variable cost per unit is the cost of producing or purchasing one unit assuming normal production levels.

## examples of sales price per unit

In most cases, the sales price per unit is the total cost to produce one unit divided by the number of units produced. For example, if it costs a business \$5 to produce one shirt and they sell that shirt for \$20, then the sales price per unit is \$20 divided by 1, which is \$20 per shirt.

Some businesses use average total cost to produce one unit and divide that by average output to find the sales price per unit. In this case, if it costs an average of \$10 to produce one shirt and they sell those shirts for \$20, then the sales price per unit is \$20 divided by 1, which is also \$20 per shirt.

In both of these examples, the cost to produce one shirt does not take into account variable costs such as labor. It only takes into account fixed costs such as materials used to make the shirts.

## examples of variable cost per unit

Variable cost per unit refers to the cost of producing each unit. These can include materials, labor, and other overhead costs. As an example, let’s say it cost \$10 in materials to make each necklace and \$3 in labor to assemble it.

Then, let’s say that the fixed overhead costs per week were \$500. This includes rent, insurance, supplies, and salaries for other staff members besides the jewelry designers.

So, the total variable cost per unit is \$13 (\$10 + \$3 + \$500). Now let’s say that 500 pieces were sold at a sales price of \$20 per piece.

## how to calculate sales price per unit

When you calculate the sales price per unit, you are finding out how much it costs you to make one unit and what you need to charge people to make a profit.

To do this, you must first know your total cost of the product. Then, you must divide that number by the number of units you intend to sell. The difference between these two numbers is your sales price per unit.

For example, let’s say that it costs a business \$8 to make one coffee and they plan on selling them for \$4 each. Their sales price per unit is then \$4 / \$8 = 50 cents.

Obviously, if they sold each coffee for 50 cents, they would not make a profit! They need to raise the price enough to cover their costs and earn a profit for themselves.

## how to calculate variable cost per unit

Variable cost per unit is the cost to make one unit of the product. These are costs that change based on the number of units produced.

For example, if it costs a company \$10 to manufacture one book, then their variable cost per book is \$10. If they sell the book for \$20, then their sales price per book is \$20.

Variable costs can include materials, salaries, and other expenses related to production. These changes depending on how many units are produced.

As mentioned above, in most cases, selling at a loss is not a good strategy for business owners. It is better to avoid losing money on each unit by keeping the sales price per unit higher than the variable cost per unit. This way, the business retains some profit and stays in business longer.

## example of determining the sale price per unit

As mentioned before, the sale price per unit is determined by the cost to produce one unit. Once that number is figured out, you must factor in your overhead costs and profit margin to get the total sale price.

For example, let’s say you make candles and you need to figure out how much to charge for them. The cost to make one candle is one pound of wax and one bottle of fragrance oil. The total cost to make each candle is \$5.

Your profit margin is how much money you want to make off each item. You decide to make \$3 per candle for your profit margin.

So, your sale price per unit is \$8 (\$5 + (\$10 – \$3) + \$3).

## example of determining the variable cost per unit

As an example, consider a carpet manufacturer that produces 1,000 square yards of carpet per day. The cost of the materials to produce that carpet is \$1,000.

Therefore, the cost per square yard is \$1. Since the average sales price per square yard is \$10, then the sales price per unit is 10 times the variable cost per unit.

If the factory had to temporarily stop production due to lack of materials, then production would be stopped for one day. The company would not lose any money due to this temporary halt in production since they have already paid for their supplies.

In fact, they would save money because they would not have to pay their workers or use electricity while they were not producing anything. This illustrates how efficient and cost-effective their production process is.