Labour Cost per Unit
Why it matters
Your Labour Cost per Unit is the amount it is costing you in Wages to produce one item. The lower this figure is the better. Keeping track of your Labour Costs is important in order to ensure that your profitability per item is not being compromised.
Making the KPI
To calculate your Labour Cost per Unit you will need to know:
- Your employee’s hourly rate
- The number of hours it takes to produce one item
You can calculate your employee’s hourly rate by dividing the Direct Wages associated with the production of the item by the number of hours available in your working week. If only three days per week are being spent working on the item, subtract the appropriate number of days in your calculation.
Once all your data is available you can calculate your Labour Cost per Unit by multiplying your employee’s hourly rate by the number of hours it takes to produce one item: