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%