Unit cost refers to the total expense incurred to produce a single unit of a product or service. This cost includes all direct expenses, such as materials and labor, as well as a portion of indirect costs like overhead. Understanding unit cost helps businesses determine pricing strategies and assess profitability. Calculating unit cost is essential for effective budgeting and financial planning. By analyzing unit costs, companies can identify areas for cost reduction and improve efficiency. This information is crucial for making informed decisions about production levels and resource allocation, ultimately impacting the overall success of the business.