Final answer:
Accountants calculate cost per unit as an average to evaluate the cost effectiveness of production per unit. This average cost is calculated by dividing total cost by quantity produced, offering a clear view of cost distribution across units. Understanding average and marginal costs is essential for pricing and profitability.
Step-by-step explanation:
Accountants calculate cost per unit as an average because it provides a simple and intuitive way to assess the cost of producing each unit of output when total costs and production levels are known. The average cost, also referred to as unit cost, is calculated by taking the total cost (TC) and dividing it by the quantity of output produced (Q), which is represented by the formula AC = TC/Q. For example, if producing two widgets costs a total of $44, then the average cost per widget would be $44/2 = $22 per widget.
On the other hand, marginal cost focuses on the cost of producing one more unit, calculated by the change in total cost divided by the change in output (MC = ΔTC/ΔQ). If the first widget costs $32.50 and the second widget brings the total cost to $44, the marginal cost of the second widget is $11.50. Understanding the average and marginal costs is crucial as they impact pricing and production decisions, and a firm's profitability is affected when its average cost of production is lower than the market price.