A unit cost is the general cost of goods that are being manufactured and sold by a company. The concept of unit cost is important because it reflects the total expenditures that a business invests to manufacture a particular product.
Explanation:
Within financial accounting, the term of a unit cost is a direct representation of all the resources that have been invested by a business to manufacture, store, and vend a single unit of a specific product or service.
A cost sheet of any company should contain unit cost information in order for the management to gain a proper understanding of all the fixed and variable costs that are linked to manufacturing a certain product or service. As an economic or an accounting variable, a unit cost is often required to help the company conduct an operational analysis of its functions and manufacture products that respond to customer needs efficiently.
The importance of unit costing revolves around several factors that cannot be ignored within the framework of managerial accounting. First, it helps the company define the volume of production that is going to be profitable in the long term.
On the other hand, the unit cost can also be used to estimate the most efficient selling price of the service or product offered by the company. If necessary, the company could also compare the previous cost of the product to its actual cost to prepare a tender cost sheet and present all the required cost-related data to the management.