Unit cost and contribution
Check what each unit costs and what each sale leaves.
How it works
Variable cost per unit = materials + direct labour + packaging.
Contribution per unit = price − variable cost per unit.
Use the result: If your price stays the same, what cost could you reduce without losing value for your customer?
Ready Pouch example
Ready Pouch is our fictional example business. Its proposed product is a small pencil pouch for students. Meet Ready Pouch
USD 1.20 + 0.60 + 0.20 = USD 2.00 per unit. A price of USD 6.00 leaves USD 4.00 contribution per unit. These are fictional teaching figures.
Assumptions
Use one currency throughout. Include all variable costs in your total. Add any other variable costs to the materials amount here. Contribution is not profit: fixed costs still need to be paid.
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