Total Unit Costs

New players often have trouble understanding the cost metrics we supply in the Branch Distribution window. 

This is the Branch Distribution window found in the Mega Menu. Here you can find three different costs variables.

The Material costs is the cost of materials and supplies for one vehicle unit. 


It only accounts for the material costs of one unit and nothing else.


The next variable is Manufacturing costs.

This variable takes into account one unit’s portion of factory costs and the material costs of that unit.

What does that mean? Say your factories' non-material related costs are $1,000,000.

You use 50% of your production capacity to produce this vehicle model. You produced 1000 units of that model. 50% of $1,000,000 is $500,000. And $500,000 divided by 1000 units equals $500 per unit.

The Manufacturing costs, therefore, are the Material Costs + $500 in this particular example.

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Finally there is Total Unit Costs.

The Total Unit Costs takes into account the variables that make up Manufacturing Costs and it includes a single unit's portion of ALL other company expenses.

For example, let’s say you’re building a new factory, at the cost of $750,000 a month. Your branches cost $500,000 a month. Your labor costs another $620,000 per month, and you’re spending another $130,000 on marketing, racing, research, etc. In total, your non-manufacturing related expenses are $2,000,000 per month. If you're building 5,000 total vehicles of all models per month, company costs per unit are $400. We add this number to the manufacturing costs, and that is your total unit costs.

What can you use these metrics for? You should price your vehicle based on Material Costs. The Manufacturing Costs and Total Unit Costs are indicators of potential profitability if you sold ALL vehicles produced at exactly these prices. You should not be pricing your vehicles with these variables, instead, use them as indications if your costs are too high or if you have low production.

A common pitfall many new CEO find themselves in is increasing the price of their vehicles based on the Manufacturing Costs or the Total Unit Costs. This action leads to a demand death spiral. If you did the Supply and Demand tutorial, you’ve learned that as you increase prices, demand drops. Both the Manufacturing Costs and Total Unit Costs depend on the number of units produced. If demand drops, and you drop production to match that, your Manufacturing and Total Unit Costs will go up. If you then increase prices again to match the new values, the cycle will repeat until you are bankrupt. Instead, use both variables as indicators of cost and production. You should find ways to lower the Manufacturing and Total Unit Costs below your sale price, rather than increase your prices to match them. Some common ways to decrease both is to increase the number of units you produce. You can also try to reduce your company costs, or increase margins with other models to compensate for the difference.