## Fixed Cost per Unit

Fixed cost per unit is calculated by dividing the total fixed costs of business by the number of units.

A business has 86 per unit in variable costs and 120,000 per year in fixed costs. The business operates at a markup of 40%. What is the selling price when demand and production is 1,000 units and 3,000 units.

### Fixed Cost per Unit at 1,000 units

The fixed costs are 120,000 and the fixed cost / unit = 120,000 / 1,000 = 120 per unit.

The total cost of a unit at this level of activity is 86 + 120 = 206.

Operating at a markup on cost of 40% the selling price would need to be 206 x 140% = 288.40

### Fixed Cost per Unit at 3,000 units

The fixed costs remain at 120,000 and the fixed cost / unit = 120,000 / 3,000 = 40 per unit.

The total cost of a unit at this level of activity is 86 + 40 = 126.

Operating at a markup on cost of 40% the selling price would need to be 126 x 140% = 176.40

This example demonstrates the importance of fixed costs and the economies of scale achieved with higher levels of production