What is the method for determining unit cost?

Determining unit cost involves understanding how much each unit of a product or service costs to produce or deliver. The correct approach is to take the total cost associated with production and divide it by the number of units produced. This calculation provides the cost per individual unit, which is essential for pricing strategies, budgeting, and financial analysis.

For instance, if a company incurs a total cost of $500 for manufacturing 100 units, dividing $500 by 100 results in a unit cost of $5 per unit. This method ensures that a business can assess profitability and make informed pricing decisions based on production costs.

The other methods mentioned do not yield a correct calculation of unit cost. Adding total cost to the number of units or multiplying the cost by the number of units does not reflect an accurate understanding of per-unit expenditure, and dividing units by cost inverts the necessary ratio. Understanding these distinctions is crucial for anyone involved in financial management or accounting within a business context.