Unit cost = total cost ÷ units. The formula is that simple; the work is in what goes into the total and which units you divide by. For something you buy, it's what you paid plus the freight, over the units that arrived. For something you make, it's the batch's whole cost over the good units that came out, not the ones you planned. And the full unit cost adds each unit's share of the rent and the other fixed costs. A kombucha brewer's 16-ounce bottle costs 65 cents for the empty glass, $1.63 to fill, and $2.13 once the brewery's rent is shared out. Below is each formula, the bottle three ways, what moves it, and a free calculator.
The short version
- Unit cost = total cost ÷ units.
- Bought: (price + freight and other costs) ÷ units received.
- Made: the batch's cost, ingredients, packaging and labor, ÷ the good units that came out.
- Full: production unit cost + the period's fixed costs ÷ the period's units.
- Divide by good units: losses make every sellable unit cost more.
- Volume moves the full unit cost, because the fixed costs are shared by fewer or more units.
- TaroStack costs every batch on its good units, from what you paid. More below.
The formulas
| Unit cost of | Formula | The kombucha bottle |
|---|---|---|
| Something bought | (Price + freight and other costs) ÷ units | ($2,520 + $210) ÷ 4,200 = $0.65 |
| Something made | Batch cost ÷ good units | $627.70 ÷ 384 = $1.63 |
| Full unit cost | Production unit cost + fixed costs ÷ units | $1.63 + $2,000 ÷ 4,000 = $2.13 |
The freight belongs in the cost of what it brought; how to share it across a mixed delivery is in landed cost formula.
An example: a kombucha bottle, three ways
Brightwater Ferments, a made-up kombucha, kimchi and sauerkraut maker in Portland, Oregon, I use in these examples, works out its 16-ounce bottle.
What it buys. A pallet of 4,200 bottles costs $2,520 and $210 to deliver: 65 cents a bottle. Caps are 6 cents and labels 12 cents, so the empty, capped, labeled bottle is 83 cents.
What it makes. A 50-gallon batch is planned at 400 bottles:
| What goes into the batch | Cost |
|---|---|
| Tea, sugar and culture | $32.00 |
| Fruit and flavor | $80.00 |
| Bottles, caps and labels: 390 filled at $0.83 | $323.70 |
| Labor: 8 hours at $20 | $160.00 |
| Alcohol test, a share | $32.00 |
| Batch cost | $627.70 |
The batch filled 390 bottles, not 400, because the sediment at the bottom of the tank isn't bottled, and six of the 390 were underfilled or broken: 384 good bottles. Divided by the plan, the unit cost would be $1.57; divided by the 384 that can be sold, it's $1.63. The 6 cents is the cost of a 96% yield, and it's real. How to measure a batch's yield is in batch yield formula, and how a batch's cost is built in batch costing example.
The full cost. The brewery's space, power, insurance and market fees are $2,000 a month, and it fills about 4,000 bottles' worth a month, counting kegs as bottle-equivalents. That's 50 cents a bottle, for a full unit cost of $2.13.
What volume does to the full cost
| Bottles a month | Overhead a bottle | Full unit cost |
|---|---|---|
| 1,000 | $2.00 | $3.63 |
| 2,000 | $1.00 | $2.63 |
| 3,000 | $0.67 | $2.30 |
| 4,000 | $0.50 | $2.13 |
| 5,000 | $0.40 | $2.03 |
The production cost stays at $1.63 whatever the volume; the overhead in each bottle doesn't. In the brewery's first months, at 1,000 bottles, a bottle really costs $3.63, which is why a $2.50 wholesale price that looks fine at full speed loses money at the start. How overhead is spread over units is in overhead cost per unit, and the business plan behind these numbers in kombucha business plan.
Which unit cost to use
The production unit cost is the floor for any price: below it, every bottle sold loses money. The full unit cost is what a price has to cover over a year. And the bought unit costs are what the batch cost is built from, so when the bottle supplier's price goes up, the made and full costs move with it.
Get the calculator
Download the unit cost calculator. Three sheets: bought, where what you paid, the freight and the units give each item's unit cost; made, where a batch's costs, the planned units and the good units give the unit cost both ways and the yield; and full cost, where the month's fixed costs and units add the overhead to the production unit cost, with a table of how it changes with volume. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
A unit cost worked out once is right for one batch at one month's prices. The next batch fills 396 bottles, the fruit costs 30% more in winter, and the bottle supplier adds a fuel surcharge. A sheet with last spring's $1.63 in it prices this winter's bottles.
How TaroStack does it
TaroStack costs every batch on its good units, from what you paid.
Bought at what it cost. Receiving records what each delivery cost, freight and other landed costs included, as cost layers, first-in-first-out or moving average, so a bottle's cost is what that pallet really cost.
Made on the good units. Each batch takes its tea, fruit and bottles off stock and records how much came out good and how much was rejected, with its labor minutes, so its unit cost is on the 384, not the 400. Its actual cost sits beside the standard.
Yield checked from history. From your own batch history, TaroStack says whether a recipe yields what it claims, so a batch size that always comes out 4% short shows in the numbers.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| A bottle's cost with freight | Worked out once | Landed cost layers |
| Unit cost on good units | Often the planned units | Good and rejected on every batch |
| Winter fruit prices | Last spring's number | Each batch at what it used |
| A recipe that always comes out short | Unnoticed | Yield from batch history |
Recipes, batches, landed costs and yield are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.