To calculate the unit cost of products sold in a business, you will need to first gather information about all the costs associated with the production of a specific volume of identical products. Now costs can be grouped by their particular behaviour in the production process. i.e. Fixed and Variable costs

• Fixed costs are those costs that do not change in relation to changes in business activity like production. A good example of a fixed cost is rent that is paid monthly and is not impacted by a change in volume of products produced.
• Variable costs are those costs that do change in proportion to changes in business activity like production. i.e. if units of production doubles, then the variable costs will double as well. A good example of a variable costs is direct materials (materials used in the production of the product)

So the unit cost of 10,000 units produced costing $20,000 in total fixed costs and $30,000 in total variable costs would be:

Unit cost = (Total fixed costs + Total variable costs) ÷ Total units produced
Unit cost = ($20,000 + $30,000) ÷ 10,000
Unit cost = $5.00