Analysing Human Resource Performance 2
Business: AQA A Level (2023 Specification), topic 6.2.2
Labour Cost Per Unit
Labour cost per unit allows a business to calculate the cost of labour for every one unit produced.
Calculating labour cost per unit
- Labour cost per unit can be calculated using the following formula:
- Labour cost per unit = (Total labour costs ÷ Total units produced)
Example of calculating labour cost per unit
- If a business has total labour costs of £250,000 and produces 1,500 products, the labour cost per unit can be calculated by dividing £250,000 by 1,500 products to get £166.67.
- For every one unit produced by the business, there is a labour or employee cost of £166.67.
Importance of labour costs per unit
- HR managers may use the calculation of labour cost per unit to compare data to previous years, to competitors and to the wider industry.
- If HR managers are unhappy with their current labour cost per unit, they may decide to increase productivity, so that employees produce more, or they may reduce employee costs.
Improving labour costs per unit
- Increasing productivity or reducing employee costs would improve the labour cost per unit.
Test yourself on Analysing Human Resource Performance 2
A business has total labour costs of £100,000 and produces 8,000 products. What is the labour cost per unit?
Which of the following would improve the labour cost per unit?
A business has total labour costs of £900,000 and produces 30,000 products. What is the labour cost per unit?