Calculate your Costs

If your company sells a variety of products at different prices, how can you calculate your unit costs? (Select the best answer.)

As an average

Add the variable costs

First, calculate the variable costs of making the product or providing the service. Your minimum selling price will have to be more than the variable costs, so that you will have a gross profit

The total cost per unit is a combination of which two things? (Select the best answer.)

Fixed and variable costs

For example, the variable costs for a candle company to produce one candle might include: $1 in materials $2 in labor This tells you that your minimum selling price must be more than $3 per candle. If you charged exactly $3 per candle, your gross profit would be $0, and the company would lose money, because the selling price would only cover the materials and labor. It wouldn't be enough to cover your fixed costs.

For example, the fixed costs of running the candle company might be: $400 in rent per month + $100 in utilities per month = $500 in fixed costs per month This means the candle company has to sell its candles at a high enough price to leave $500 left over each month to cover fixed costs, after subtracting the $3 in variable costs per candle.

Add the fixed costs

You'll calculate the fixed costs over a certain period of time, such as a month.

The _____ is when your net profit exactly pays for the costs of running the business, with no extra profit left over. (Select the best answer.)

break-even point

total cost per unit

is a combination of variable and fixed costs. You already know how to calculate the variable costs per unit.

gross profit

is the amount of money you earn after subtracting the variable costs of making the product or providing the service.

Net profit

is the amount you earn after subtracting all of the costs of running the business, including both variable and fixed costs.

minimum selling price

is the price you will need to charge in order to cover the costs of running your business.

break-even point

is when your net profit exactly pays for the costs of running the business, with no extra profit left over.