1. Economics of One Unit - EOU
Selling Price - Expenses = Profit (or Loss)
Contribution Margin - amount per unit that a product contributes toward the company’s profitability before the fixed expenses are subtracted
Selling Price - Variable Expenses = Contribution Margin
*Remember the contribution margin for one unit does not take into consideration the business’s fixed expenses

2. Cost of Each Hat Cost of Goods Sold Cost of Hat $6.00
Labor & Materials
Total Cost of Goods Sold $8.50
Other Variable Expenses
Shipping $1.00
Handling
Total Other Variable Expenses $1.25
Total Variable Expenses $9.75

3. EOU For More Than One Product
A business selling a variety of products has to create a separate EOU for each product to determine profitable
If there are similar products - “typical EOU”
Ex: Candy bars
Chocolate Dee-Light - $0.36
Almond Happiness - $0.38
Fruit ‘n’ Joy - $0.42
Junior Chocolate Roll - $0.44
Total - $1.60

4. EOU For More Than One Product
$1.60 / 4 = $0.40 (Average Cost)
EOU For Candy Bars
Selling Price (per unit) $1.00
Variable Expenses
Cost of Goods Sold
Candy Bar (Average Cost) $.40
Cost of Goods Sold $.40
Other Variable Expenses
Commissions $0
Shipping & Handling $0
Total Variable Expenses $.40
Contribution Margin (per unit) $.60

5. Bell Ringer
Adam is the owner of Krazy Candy Galore - it’s a candy company that sells similar candy products. Adam wants to examine the companies profitability and to do so he needs to conduct an EOU (economics of one unit). Adam is not familiar on how to find the EOU because he did not take an Entrepreneurship class in high school ;) He is asking you to figure out the EOU for his products - since the types of candy are similar, he only needs to produce one EOU and all of his products have a selling price of $ What is Adam’s contribution margin? Is the company profitable?
Products: Total Cost
Krazy Pop Chocolate - cost $.45
Delicious Almond Fudge - cost $ .50
Yummy Tummy Gummy Chocolate - cost $.25
Krazy Peanut Butter - cost $.50
EOU
Selling Price
Variable Expenses
COGS
Other Variable Expenses
Commissions
S & H
Total Variable Expenses
Contribution Margin