KNOWLEDGE LIBRARY

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Unit Values

The unit selling price (USP) for an item is the price paid per unit by a customer for the item.  The unit inventory value (UIV) for a purchased item is the price paid to the supplier for the item including inbound transportation cost. The unit inventory value (UIV) for a manufactured item is the cost of manufacturing the item, sometimes referred to as the standard cost. Unit gross margin (UGM) is the difference between unit selling price and unit inventory value. The higher the unit gross margin, the higher the cost of lost sales associated with that particular item.

UGM = USP – UIV

For example, if an item sells for $25.00 per unit and its unit inventory value is $14.00 per unit, then its unit gross margin is

UGM = $25.00 – $14.00 = $11.00 per unit

The unit gross margin percentage (UGM%) is the ratio of the unit gross margin to the unit selling price.

UGM % = UGM/USP

In this case the unit gross margin percent would be

UGM% = UGM/USP = $11.00/$25.00 = 44%

 

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