What is the formula for shipping cost per item?

Calculating Shipping Cost per Item

To determine the average shipping cost per item, it is essential to first calculate your average inventory. This figure, when divided into your total shipping expenditure, will reveal the per-unit shipping expense.

Steps for Calculating Average Shipping Cost per Item:

1. Calculate Average Inventory:

   • Determine the value of your inventory at the beginning of the accounting period.
   • Determine the value of your inventory at the end of the accounting period.
   • Add these two figures and divide by 2 to obtain your average inventory.

2. Determine Total Shipping Expenditure:

   • Compile all shipping costs incurred during the accounting period, including freight charges, postage, and handling fees.

3. Calculate Shipping Cost per Item:

   • Divide your total shipping expenditure by your average inventory to obtain the average shipping cost per item.

Formula:

Shipping Cost per Item = Total Shipping Expenditure / Average Inventory

Example:

Suppose your inventory value at the beginning of the period is $50,000 and at the end of the period is $40,000. Your average inventory is therefore:

Average Inventory = (50,000 + 40,000) / 2 = $45,000

During this period, you incurred $5,000 in shipping expenses. Therefore, your shipping cost per item is:

Shipping Cost per Item = 5,000 / 45,000 = $0.11

This calculation provides valuable insight into your logistics costs, allowing you to optimize shipping strategies and allocate resources effectively. By understanding the per-unit shipping expense, you can determine if your shipping costs are competitive and if there are areas for improvement.