Cost unit

Definition

A cost unit is a clearly defined, measurable unit of product or service for which costs are collected and stated (e.g., per litre, per room-night, per patient-day).

Fact (core points)

It’s the denominator in cost statements:

Unit Cost = Total Cost ÷ Number of Cost Units.

Choice of cost unit must match how value is delivered (physical units for goods; composite/time units for services).

Widely used for 

1. pricing, 
2. budgeting, 
3. variance analysis, and 
4. benchmarking.

Elaboration

Why it matters: A good cost unit makes costs comparable across periods, products, branches, and competitors.

How to choose: Reflects customer benefit, is easy to measure, industry-standard if possible, and consistent over time.

Types:

1. Simple/absolute (e.g., per kg, per unit)
2. Time-based (per hour, per bed-day)
3. Composite/compound (captures two dimensions, e.g., tonne-km, passenger-km, machine-hour).

Cost unit vs cost centre: A cost centre is where costs are collected (department/machine/person). A cost unit is what those costs are expressed per.

Examples (by industry)

Industry / Activity	Typical Cost Unit	Notes
Bottled water	per bottle (500 ml) or per litre	Simple physical unit
Cement	per tonne	Commodity output
Electricity utility	per kWh	Service measured in energy delivered
Hospital	per bed-day / per patient-case	Time- or case-based service
Hotel	per room-night	Matches revenue basis
Education/Training	per student-hour	Time × students
Transport (bus)	per passenger-km	Composite: people × distance
Freight (trucking)	per tonne-km	Weight × distance
Construction	per square metre	Output measured in area finished
Software support	per ticket resolved / per user-month	Output or subscription time
Call centre	per call handled / per minute	Volume or time
Agriculture (palm oil)	per tonne FFB	Commodity unit

Tiny numeric illustration

A bus company incurs RM12,000 total operating cost in a week and carries 60,000 passenger-km.

1. Cost unit: passenger-km
2. Unit cost: RM12,000 ÷ 60,000 = RM0.20 per passenger-km
3. A 15 km trip costs ≈ 15 × 0.20 = RM3.00 (before margin).

Quick checklist to set a cost unit

1. What does the customer actually buy? (volume, time, distance)
2. Can we measure it reliably each period?
3. Is it standard in our industry?
4. Will it support fair pricing and performance comparisons?