Unit Sales

  

Categories: Company Management

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: What is Process Costing...0 Views

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and finance Allah shmoop What is processed Costing shmoop old

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All right People like the name says process costing helps

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you figure out well the cost of the process But

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which process All right well here we're talking about manufacturing

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process costing helps companies determine how much it'll cost them

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to make each individual product they manufacture Firms use the

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technique to assign the expenses related to manufacturing to each

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of the units they produce The process works best in

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cases of mass production Yeah lots and lots of identical

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items getting made in mass production If you're carving custom

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totem poles by hand while process costing won't really come

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into play or help you much however much it costs

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you to make that one totem pole Well that's just

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what it cost you But when you're cranking out giant

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patches of the same product while process costing tells you

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how much money to assign to the manufacture of each

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little unit Okay so you run a company that makes

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the eyes that go into teddy bears You don't make

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the teddy bears themselves You're actually scared of stuffed animals

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Long story involving a haunted teddy He tried to kill

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you as a kid although while the memory is a

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little foggy but you can emotionally handle making just the

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eyeballs So your company makes millions and millions of little

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black buttons that you ship off to teddy bear factories

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all over the world All your eyes are the same

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You make 1,000,000 eyes a month The only material you

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need is the plastic will Buying the plastic to make

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1,000,000 eyes cost you 100 grand Meanwhile the cost of

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paying your workers plus the expenses associated with running cutting

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shaping and stamping machines well all that together comes to

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150 grand Using advanced calculus you determine that the material

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cost for the 1,000,000 eyes or 10 cents and I

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the labor and machine expenses known as your conversion costs

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are 15 cents and I The total cost for the

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process is 25 cents and I a total of 250

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grand for materials in conversion cost divided by the 1,000,000

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eyes you just produced Well the simple division works because

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each eye's essentially identical You can assume that each one

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took an equal amount of time an equal amount of

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plastic an equal amount of machine power to produce and

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labor to produce the adult get labour in a single

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product factory process costing doesn't provide much insight but when

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there are multiple products the strategy is essential to understanding

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profit margins for the various products Will you start a

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second business line to sell eyes for dolls You also

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have a fear of dolls because of that time your

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sister locked you in her closet over night A lot

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of years of therapy spent on that one Thanks Susie

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Well the doll eyes and the teddy eyes used the

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same plastic and the same machines and the same labour

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Under the new setup you're making 750,000 eyes 500,000 doll

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eyes The plastic costs you 200 grand a month The

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cost of the machines and labor total 150 grand so

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in total you're spending $350,000 to manufacture 1.2 5,000,000 eyes

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Do the math each I cost 28 cents per I

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know that right Not quite The doll eyes required twice

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the plastic as the teddy eyes However they only need

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2/3 of the time in the machines and only 2/3

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of the labor time to create So here's where process

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costing earns its keep The goal here is to take

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these general costs and apply them to the specific products

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Right So you're spending 200 grand a month on plastic

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to make 750,000 teddy eyes and 500,000 doll eyes That's

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1.2 5,000,000 eyes total including those for both dolls and

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Eddie's But the doll eyes take twice as much plastic

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to make throw everything into the process costing mathematical blender

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and you end up with wealth 10 cents and I

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for the teddy version and 20 cents and I for

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the doll version So now let's do the same thing

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with the other costs While 150 grand total for all

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production doll eyes used 2/3 of the resource is as

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the teddy eyes math blender Again we get 10 cents

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for the doll eyes and 15 cents from teddy eyes

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Total cost for the two products 25 cents for the

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teddy eyes and 30 cents for the doll eyes So

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process costing shows us that doll eyes arm or expensive

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to make by a fair amount than the Eddie eyes

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Full time for the annual board meeting You have money

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for a marketing push and the board wants you to

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recommend which product to push harder Eddie eyes or doll

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eyes Well the teddy I sell for 35 cents each

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and the doll I sell for 51 cents each Well

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the process costing we did shows us that the teddy

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product cost 25 cents to make And if they sell

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for Roel 35 cents that means that there's a 10

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cent gross profit on each sale Divide that 10 cent

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profit by the 35 cents in revenue each one brings

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in and well gross margins on those then come in

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about an 29% The doll product cost 30 cents to

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make with a 51 cent sales price The gross profit

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on each eye is then 21 cents which means gross

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margin just over 41% So the doll eyes while more

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expensive to make our ah higher margin product because they

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sell for so much more you recommend a marketing push

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for the doll eyes information you wouldn't have had if

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you didn't go through the process costing rigmarole like we

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just did here It makes process costing a very useful

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tool when you're mass marketing or mass producing multiple products

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and yet can't say the same for the totem pole

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subsidiary you're thinking about you know getting off the ground

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Each totem pole there takes a different amount of time

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and different amount of materials and we'll each has different

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machine costs associated with its production But at least you

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know when you carve out the animal faces you'll have 00:05:12.789 --> [endTime] the eyes all ready to go

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