Learning Journal 7 – BUS 3301- University of the People
in the manufacturing production frame, managers and accountants refer
to many indicators like process costing, job costing, unit costing, and so on
to make sure that their production is cost-effective and profitable to their
companies. In this assignment, I am mainly going to talk about unit cost in
a well-known local company BMW Motors production context and try to
understand what it is, and which role it precisely plays in that company's
business.
BMW Motors produces cars that are sold worldwide. But one can ask, “how
much does it cost to produce a single unit at BMW?” For example, the
BMW 2 Series Gran Coupe costs US$35,700, according to the BMW San
Diego website
(BMW of San Diego, 2021, March 7)
. Before fixing the selling
price, BWM managers should calculate the unit cost of each single car
production. This means they consider the company fixed costs that should
encompass the production plant cost and the plant taxes. Now, these fixed
costs should be divided by the number of cars produced in a determined
period of time. In addition, they should also calculate the cost of the said
BMW car model variable costs composed of the costs of direct materials
used for the production like the metal sheets, the engine, tires, and the
direct labor.
Which variable cost also should be divided by the number of
cars produced in the same period of time as for the fixed costs. Now it is
the addition of both fixed costs and variables per every single car
produced that is the unit cost of BMW 2 serie Gran coupe. This car is
priced at $35,700. If each unit produced cost was $20,000, maybe the
fixed cost of this amount was $8,000, and the remaining $12,000 would be
the variable cost per car. When talking of unit cost, it is also important to
precise that overhead and sale costs are not taken into account as
explained by Jason Fernando (2022, March 24), an Investopedia content
writer in an article about
Cost of Goods Sold (COGS),
the other name of
Unit cost. Unit cost is important in business analysis because it is a quick
way for a manager to know if a product is efficient or not. And in case it is
not efficient, the manager can look for reducing the unit cost and increase
the company gross margin that is obtained by withdrawing the unit cost
from the sale price. One way the managers reduce the unit cost of an
article is to outsource a part of the production work. In the case of BMW, in
2005, it decided to outsource 55% of its electronic components, from 30%
till that year
(BMW Outsourcing, 2005, May 1)
.
Another name for unit cost is
the
breakeven point
. Because it helps a manager know how much to price
or sell a product and not lose.
