unit cost

Average cost of production per item. Unit cost is calculated by dividing the total cost by the number of units produced. For example, if a car manufacturer produced 1 million cars at a total cost of 7,000 million, then the unit cost would be 7,000. Unit costs comprise two elements: variable costs and fixed unit costs. When using unit costs to predict the total cost of producing a certain number of units, it is important to remember to take into account the fixed element.