How many units did you sell? You know that sales were $10 million in the quarter. Those mugs-with-swear-words-on-them had an average cost of 5 bucks each; you sold them for an average wholesale price of 10 bucks a pop. So you sold 100,000 units.
That's it. Unit sales: 100,000. Easy.
Related or Semi-related Video
Cost Accounting: How Can Unit Fixed Cost...3 Views
And finance Allah Shmoop How can unit fixed costs mislead
the misled Okay so you're in the wireless vibrating headset
business This year you spent a small fortune building all
the assembly and tuning elements you needed to crank out
tons of those headsets Well the initial cost was big
and the factory requires angle maintenance insurance and other costs
of about twenty five million bucks a year The factory
can handle production of up to a million units with
employees working nine hour days with loaded fully allocated costs
Buzz brain ink could produce these units for fifty dollars
each and wholesale them to places like Costco and Walgreens
and Wal Mart for one hundred dollars and well make
a nice living Things were generally running at capacity when
an order came in from China Yes it seemed like
almost the whole country wanted these things A one time
special order for a million units Special price Forty five
dollars each So this is a problem How can you
sell a product for less than it costs you to
make that product right Like here it cost you fifty
bucks and they want to buy him for forty five
so you can't You can't lose money on every sale
and I hope to make it up involving him or
something It doesn't work that way Well at least not
unless you live in either idiot ville or bankruptcy corner
So you reject that huge order from China that would
have lost you a whole bunch of money But then
some widely manager who actually bothered to pay attention to
this video said Hey wait a minute Does it really
cost us fifty bucks a unit to make these things
We have twenty five dollars of hard raw material costs
but then we kind of arbitrarily allocated twenty five dollars
toe Amor ties the factory's twenty five million dollars a
year costs on the current full capacity of a million
units a year we currently produce After all we've run
the factory only nine hours a day Well everyone in
the meeting becomes silent All the suits realized that the
allocation and twenty five dollars per unit is way too
high If the factory was going to crank out say
two million units instead of just one well then all
the numbers would change That is for the additional cost
of five bucks a unit The factory could pay time
and a half two employees running a midnight to nine
a M shift and that would add just five million
dollars total to the annual cost time and a half
would be sought after by a lot of workers They
make twenty bucks an hour is normal time so they'd
make thirty bucks an hour for working the overnight shift
No problem filling those jobs in the factory quickly Meanwhile
making a second million units could lead to other good
things that make that twenty five dollar allocation seem even
further off the mark like being ableto ordered double the
raw materials and have much more power with their vendor
suppliers That is they'd probably get even more volume discounting
than they already did under just one million units worth
of stuff right volume purchasing If they're hard materials plastic
and wires and bent metal things in the vibrating unit
thing in the battery holder couldn't they get ten twenty
thirty percent less if they were doubling the size of
their order Yeah probably so that riel allocation of twenty
five dollars have cost is now squishy and suspect and
almost a company murderer Well the order from China is
a one time thing Is it fair to lumpy in
that one time deal with the normal operations of the
business Could you argue that well operationally it makes sense
to keep the allocations as they are I keep the
twenty five dollars a unit allocation for that factory maintenance
costs for the first million and then on the extra
cost of human labor Well just add that extra five
bucks a unit to the raw material costs of twenty
five bucks a unit to get a total marginal cost
of thirty dollars a unit for each one sold to
China for forty five dollars Right you making fifteen dollars
If you think about the accounting that way is it
fair to break them up like that Since China's orders
well probably will never happen again Maybe not the worst
idea to break them out separately anyway Think of it
this way You're starting a quote New unquote business for
the China Order Your regular operations represent the old business
The new businesses selling one year's worth of production in
China at nice profit margins fifteen dollars a unit You're
having toe higher up To do so you're having to
readjust union contracts and other things to accommodate for that
one year period If you just blended everything together for
a company wide two million units sold well then it
would kind of cloud the rial inputs and the rial
margins and the rial direct costs here So if you
think about things you almost rejected China's offer ordeal thinking
that you'd be losing five dollars a unit in doing
so But because someone on your staff watch this video
you wisely accept that offer and make fifteen dollars a
unit times a million And that's fifteen million box extra
for your company money you'd have otherwise rejected It's totally
fine If you want to send shmoop a percentage of
your gains here you know we do take gratuities You're
welcome
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