Reviewed November 2026. Formulas are shown above the guide. Report an error or request a calculator.
Why the standard cost is too low
A standard cost sheet usually adds material, labor and overhead for one unit and stops there. But no line runs at 100% yield. Every part that fails inspection used the same material, machine time and labor as a good one, and that cost has to be recovered from the parts you actually ship.
The cost per good unit puts that hidden cost back where it belongs. It is the figure to use when you quote prices, compare suppliers or decide whether a yield project is worth funding.
Worked example
With the default values, a batch of 12,000 units costs $2.80 of material and $1.65 of labor and overhead per unit started, and first-pass yield is 91.5%.
| Step | Amount |
|---|---|
| Cost of units started (12,000 × $4.45) | $53,400.00 |
| Good units (91.5%) | 10,980 |
| Rejected units | 1,020 |
| Salvage (1,020 × $0.15) | −$153.00 |
| Cost per good unit | $4.849 |
The perfect-run cost is $4.45, so poor yield adds about 9% to every unit you sell.
How yield changes unit cost
The multiplier is simply 1 ÷ yield. At 80% each good part carries 1.25 parts' worth of cost; at 90%, 1.11; at 95%, 1.05; at 99%, 1.01. The curve is steep at low yields, which is why the first few points of improvement on an immature process are worth far more than the last few on a mature one.
| Yield | Cost multiplier |
|---|---|
| 80% | 1.250 |
| 90% | 1.111 |
| 95% | 1.053 |
| 99% | 1.010 |
Common mistakes
- Using final yield instead of first-pass yield. If rejects are reworked and later pass, use the rework calculator for that cost and keep only true scrap here.
- Applying yield to purchased parts that are not consumed. If a rejected assembly can be stripped and its components reused, enter their value as salvage.
- Multi-step lines. Rolled throughput yield is the product of each step's yield. Three steps at 97% give 91.3%, not 97%.
Frequently asked questions
What is first-pass yield?
The share of units that pass every inspection the first time, without rework. It is the honest measure of a process because rework hides losses.
How do I calculate yield for a multi-step process?
Multiply the yield of each step. This is called rolled throughput yield. Enter the result as the first-pass yield.
Should overhead be included?
Yes, if the rejected unit consumed machine time. Overhead that does not change with output, such as rent, is already spread over good units by your costing system.
What counts as salvage value?
Anything you recover from a rejected unit: scrap metal sold by weight, reusable components, or a rebate from the material supplier.