cost of producing one unit of product or service, usually based on averages. For example, if total manufacturing costs are $100,000 and the production volume for a given period is 10,000 units, the unit production cost is $10 per unit ($100,000/10,000 units). Unit costs may be stated in terms of gallons, feet, tons, individual units, and so on.Unit costs must be available for comparison of varying volumes and amount and for the purpose of establishing unit sales price of the product or service. If volume of activity increases, the variable cost per unit remains the same but the fixed cost per unit drops.