What are unit sales?
On a balance sheet, unit sales represent the total sales of a product over a given period. This sales information is used to determine the price level at which profit can be made per unit given the actual cost of production.
Key points to remember
- Unit sales help determine the best price for a product given the manufacturing cost.
- Unit sales are examined over different accounting periods, such as monthly, quarterly or yearly.
- A company can forecast future unit sales by multiplying the expected number of units to sell by the selling price per unit.
Understanding unit sales
Unit sales appear on a company’s income statement and are examined over different accounting periods, such as monthly, quarterly, or yearly. Companies use this figure to help determine the right price for a product.
Unit sales help determine if a product is under pressure on margins. If XYZ Corp. has revenue of $250 million and has sold 5 million units, the average selling price (ASP) is $50 per unit ($250 million/5 million). If the next reporting period shows an average selling price of $48, this may be a red flag for the business.
Comparing unit sales each year can help industry analysts determine if a company is moving in a positive direction. In 2021, Tesla recorded sales of 936,000 electric vehicles, up 87% from 2020. The company said it sold 308,600 units in the last quarter of 2021 alone.
Supply chain outages since the start of the COVID-19 pandemic in 2020 have been debilitating for automakers, however, Tesla founder and CEO Elon Musk said he was able to circumvent the shortage of semiconductors using new chip designs and rewrite software.
Unit sales and production
The break-even point is the level of production at which the cost of producing a unit is equal to that unit’s income and there is no loss or gain.
Considering production costs per unit, the price of a unit is often adjusted to guarantee at least a break-even point. The revenue generated per unit above the break-even point (BEP) is called profit.
Beyond the break-even point, companies analyze marginal cost, which is the change in total cost when the quantity produced is incremented, or the cost of producing an additional quantity.
In the production of units, companies often factor in economies of scale, the cost advantages gleaned by companies when production becomes efficient. Economies of scale are achieved by increasing production and reducing costs, as costs are spread over a greater number of goods. Costs can be both fixed, like insurance and licensing, or variable, like packaging supplies.
Unit sales forecast
A company can and often predicts future and projected sales by multiplying the expected number of units to sell by the selling price per unit.
Past financial results such as profits and revenue will show patterns and a business can make reliable assumptions about future sales. Also, having already produced units for sale, a company will know its direct expenses to produce the units, also known as cost of goods sold (COGS).
Large companies often predict future sales of their products using this data. With estimated first-quarter sales of 110,000 vehicles in the United States, Tesla now leads the luxury segment and demand easily outstrips its supply. With Tesla’s recent factory expansion, global annual production is expected to rise from around 1 million vehicles in 2021 to around 2 million in 2023, analysts said.
While Tesla is transparent about future unit sales, Apple has stopped reporting unit sales numbers in its earnings reports beginning in 2018. Apple executives have decided that the number of units sold over a period is not necessarily indicative of the underlying strength of its activity. Apple saw that instead of providing a clear overview of Apple’s business, unit sales were a distraction from bigger data and the nature of Apple’s business.
What is turnover?
Revenue is equal to the total number of units sold multiplied by the average price per unit.
What is the difference between unit sales and sales volume?
Sales volume is defined as the number of units sold during a specific accounting period, such as per month or per year.
What are LIFO and FIFO?
LIFO, Last In First Out and FIFO, First In First Out, are two separate accounting methods for recording the inventory of units produced and sold. FIFO is an accounting method in which units bought or produced first are sold first. LIFO records the most recently produced units as sold first.
The essential
Unit sales data on a balance sheet shows the actual number of a product sold during a given reporting period. A company can predict future and projected sales by multiplying the expected number of units to sell by the selling price per unit. Comparing unit sales over time periods helps industry analysts determine if a company is moving in a positive direction.
