Cost Per Unit refers to the total cost incurred to produce one unit of a product or service. This calculation includes all expenses, such as materials, labor, and overhead costs, divided by the total number of units produced. Understanding this metric helps businesses set prices and manage budgets effectively. By analyzing Cost Per Unit, companies can identify areas for cost reduction and improve profitability. For example, if a company produces widgets and finds that the cost per unit is too high, it may seek to negotiate better prices for raw materials or streamline its production process to lower costs.