Whether you’re a small business owner or a logistics manager, understanding how to calculate freight cost per unit can help you make better decisions about your shipping expenses.
Freight costs can vary depending on several factors, including the weight and size of the shipment, the distance it needs to travel, and the mode of transportation used.
Formula
To calculate the freight cost per unit, you need to divide the total freight cost by the total number of units shipped. The formula looks like this:
Freight Cost Per Unit = Total Freight Cost / Total Number of Units
For example, if you shipped 500 units and the total freight cost was $10,000, the freight cost per unit would be:
$10,000 / 500 units = $20 per unit
Variables
When calculating freight cost per unit, there are several variables that come into play.
- Total Freight Cost: The total cost that supplier charges you for the freight.
- Number Of Shipped Units: The total units you expect to be delivered.
Additional Variables
Here are additional variables you need to consider that account to freight costs:
- Weight: The weight of your shipment is one of the most significant factors in determining freight costs. The heavier your shipment, the more it will cost to transport.
- Dimensions: The size of your shipment also plays a crucial role in determining the cost of transportation. The larger the shipment, the more space it takes up on the truck, which results in higher costs.
- Distance: The distance between the origin and destination of your shipment is another crucial factor. The farther the distance, the higher the cost of transportation.
- Mode of Transportation: The mode of transportation you choose will also affect the cost of transportation. Shipping by air is generally more expensive than shipping by sea or land.
- Type of Freight: The type of freight you are shipping can also impact the cost. Hazardous materials, oversized items, and perishable goods may require special handling, which can increase the cost of transportation.
- Freight Class: The freight class is a standardized system that categorizes shipments based on their density, value, and ease of handling. The higher the freight class, the higher the cost of transportation.
By considering these additional variables, you can closely determine the most cost-effective way to ship your goods and calculate the freight cost per unit accurately.
Real Example
Let’s take a look at a real-life example to see how this process works.
Imagine you own a small clothing store, and you need to order 500 pairs of jeans from a supplier located in another state. The supplier charges $2,000 for the order, and the shipping cost is $500. You calculated additional charges that you will incur and it was extra $200.
To calculate the freight cost per unit, you’ll need to:
Add together all freight related expenses, so your total freight cost is $700 ($500 + $200).
Divide the total cost by the number of units in the order. In this case, there are 500 pairs of jeans, so the freight cost per unit is $1.4 ($700 ÷ 500 = $1.4 per unit).
It’s important to note that the total freight cost should include all expenses related to shipping, such as fuel surcharges, handling fees, and insurance costs. Make sure to include all of these expenses when calculating the total freight cost.
By calculating the freight cost per unit, you can better understand the true cost of your products and make informed decisions about pricing and profitability of your products.