Product cost per unit

The product cost per unit under absorption costing

$$\textbf{Product cost per unit} = \frac{\text{Direct Materials} + \text{Direct Labour} + \text{Direct Expenses} + \text{Production Overheads Absorbed}}{\text{Units Produced}}$$

Units ProducedDirect Materials+Direct Labour+Direct Expenses+Production Overheads Absorbed​

Where:

• Production Overheads Absorbed $=$ OAR × activity used (e.g., labour hours or machine hours for the units produced).

Optional totals (if needed):

• Factory/Production cost per unit = (DM + DL + Direct Exp + Mfg OH) ÷ units
• Full cost per unit = (Factory cost + Admin OH + Selling & Dist. OH) ÷ units

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Quick example

• Direct materials per unit: RM30
• Direct labour per unit: 2 hours × RM12/hr = RM24
• OAR: RM4 per labour hour → OH per unit = 2 × RM4 = RM8
• Direct expenses per unit: RM3

$$\text{Product cost per unit} = 30 + 24 + 8 + 3 = \boxed{\text{RM65}}$$

If you’re using marginal costing, exclude fixed production OH from the unit cost (treat it as a period cost).