Unit Price vs Unit Cost
Unit price and unit cost are two related terms that are confusing for many. While unit price is important from the point of view of retail customers shopping in malls and shops, unit cost is a feature holding significance for manufacturers as it is in their interest, to keep unit cost down to the minimum to have bigger sales. For readers who cannot appreciate the significance of unit price and unit cost, this article attempts to highlight the differences between these two types of prices.
When you are in a shopping mall, buying groceries, you get to see a food item for a particular price. However, in another shelf there is a bigger packing of another company that contains 3 pieces of the same food item. The price of this packing is, however, lower than 3 times the price of the single pieced packing. This is where the concept of unit price comes into play. Unit price is for retail customers only, and they know how much they are paying for a single piece even if they are buying more than one piece at a time.
So the next time you are in a shopping mall and see a bigger packing of talcum powder that is also costlier than your regular packing, do not feel that you are being charged more for the packing. If you are paying $1 for a 200g packing and the 500g packing has a price of $2, you are actually getting the advantage of economy of scale by getting 100g free. What one must look or calculate while shopping is the unit price and not the price of packing that may contain several units.
Unit cost is the cost incurred on producing and packing a single piece of item and is useful for a manufacturer as it allows him to decide on the unit price to be sold in retail, keeping in mind the selling price per unit to retailers and allowing for a decent margin to them, as well. The lower the unit cost, the item becomes more competitive and sells in higher numbers, with all other factors being constant. In general, unit cost is higher for a small manufacturer while it is lower as the manufacturing company becomes bigger through sheer economy of scale.
What is the difference between Unit Price and Unit Cost?
• Unit cost is the cost incurred on producing and packing a single piece of item, whereas unit price is the price of a single piece of item.
• Unit price is what is important from the customer’s point of view. On the other hand, unit cost is what holds significance for a manufacturer, as he strives to keep it down so as to generate more profits and more sales.
• A customer in retail should calculate the unit price to know what he is paying for a single item or a pound of food item, rather than looking at the total quantity of the product he is buying.