Work out what each unit really costs to make. Enter one batch's materials, packaging, labor, setup and other costs, choose how to allocate overhead and allow for waste, then get the cost per unit and a selling price at your target margin.
Last updated:
Batch
%
Units lost to defects, testing or spoilage.
Direct costs per batch
$
$
h
$
Wage plus payroll costs.
$
Fixed per batch: cleaning, machine setup, test runs.
$
Energy, consumables, freight-in for this batch.
Overhead allocation
Allocate overhead by
$
Rent, utilities, insurance, software, admin.
%
Pricing
%
Profit as a share of the selling price.
Enter your values to see the result.
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How to use the Cost Per Unit Calculator
Enter the batch size and the share of units you usually lose to waste or rejects.
Add the direct costs of one batch: materials, packaging per unit, labor hours and hourly cost, setup and other costs.
Choose an overhead method: monthly overhead divided by monthly output, or a percentage of direct cost or labor.
Set your target margin to get a suggested selling price.
Check the tables to see how batch size and margin change the unit cost and price.
Cost per unit formula
Direct labor = labor hours per batch × labor cost per hour
Direct cost = materials + packaging per unit × batch size + direct labor + setup + other direct costs
Overhead = (monthly overhead ÷ units per month) × good units, or direct cost × overhead %, or labor × overhead %
Good units = batch size × (1 − waste %)
Cost per unit = (direct cost + overhead) ÷ good units
Price at a target margin = cost per unit ÷ (1 − margin %)
Example (the default candle batch): materials $640 + packaging $0.45 × 200 = $90 + labor 16 h × $22 = $352 + setup $60 + other $35 gives $1,177 of direct cost. With 3% waste there are 194 good units; overhead of $2,400 ÷ 1,600 units = $1.50 per unit adds $291. Total $1,468 ÷ 194 = $7.57 per unit, and a 40% margin price is $7.57 ÷ 0.6 = $12.61.
Which costs go where
Category
Examples
Changes with batch size?
Direct materials
Raw materials, ingredients, components, fabric, wax
Use the cost of the labor including payroll taxes and benefits, not just the wage.
Count your own time at a fair hourly rate, even if you do not pay yourself yet.
Recheck material prices every few months; a supplier increase flows straight into unit cost.
Selling costs such as marketplace fees, shipping to customers and payment fees are not production costs; cover them in your price or margin.
Frequently asked questions
What is the cost per unit formula?
Cost per unit = total production cost ÷ number of good units produced. Total production cost is direct materials + direct labor + other direct costs + allocated overhead. For example, $1,500 of total cost for 194 good units is $7.73 per unit.
What is the difference between direct costs and overhead?
Direct costs can be traced to the batch: materials, packaging and the labor hours spent making it. Overhead is the cost of running the business that is shared by all products, such as rent, utilities, insurance, equipment depreciation and admin.
How should I allocate overhead to each unit?
The simplest method divides monthly overhead by the number of units made each month. Manufacturers often use a rate based on labor cost or machine hours, and small shops often add a percentage of direct cost. Pick the method that matches what drives your overhead.
Why does waste raise the cost per unit?
You pay for the materials and time that went into rejected units, but you can only sell the good ones. A 5% waste rate means the batch cost is spread over 95% of the units, raising the cost of each sellable unit by about 5.3%.
How do I turn cost per unit into a selling price?
To hit a target gross margin, divide the unit cost by (1 − margin). A $7.73 unit cost at a 40% margin gives a price of $7.73 ÷ 0.60 = $12.88. Adding 40% markup instead would give only $10.82, which is a 28.6% margin.
Why is the cost per unit lower for larger batches?
Fixed costs per batch, such as setup, cleaning and test runs, are shared by more units. Materials and labor per unit stay roughly the same, so the savings come from spreading fixed costs. The batch size table shows this effect.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.