The lowest unit price is not always the lowest cost per usable unit. Compare equivalent specifications and quantities, then include delivery and expected yield. Keep the immediate cash commitment separate from the material cost assigned to the job.
Put two offers on the same basis
A job needs 180 usable units. Offer A is a 100-unit pack for 500, with 80 delivery per order and expected usable yield of 95%. Offer B is a 120-unit pack for 570, with delivery included and 90% yield. Assume each offer meets the same specification and that the yield estimates come from relevant records.
| Measure | Offer A | Offer B |
|---|---|---|
| Packs needed | 2 | 2 |
| Purchased units | 200 | 240 |
| Purchase plus delivery | 1,080 | 1,140 |
| Expected usable units | 190 | 216 |
| Cost per usable unit | 5.6842 | 5.2778 |
| Expected usable units left after job | 10 | 36 |
Whole packs are necessary: ceil(180 ÷ (100 × 0.95)) = 2 for A and ceil(180 ÷ (120 × 0.90)) = 2 for B. Do not round the required units down before calculating packs.
Distinguish cost consumed from cash paid
Allocating landed cost across expected usable units assigns about 1,023.16 to 180 units from A, versus 950 from B. However, B needs 60 more cash immediately. Its remaining 36 usable units have value only if they can actually be used or sold later.
If leftovers cannot be used and have no recovery value, this one job must bear the full purchase: 1,080 for A or 1,140 for B. That changes the comparison. Do not count unusable leftovers as inventory savings just because a spreadsheet can assign them a cost.
Stress-test uncertain yield
At only 75% yield, B’s two packs provide exactly 180 usable units, and cost per usable unit rises to 6.3333. At 70%, two packs provide only 168 units. A third pack is needed, raising purchase cost to 1,710 before any other charges. Small yield changes can therefore cause a large whole-pack jump.
Use material order packs to check quantities, then material yield and pack sizes for the distinction between input waste and adding a contingency to required output.
Check costs the quote may omit
Record freight, non-recoverable charges, handling and inspection where relevant. Keep recoverable taxes out of a cost comparison only when that treatment applies to your business; cash paid can still occur earlier than recovery. Check specification, returns, lead time and reliability separately instead of forcing every difference into an invented percentage.
Finish with reorder planning and put the supplier’s payment date in the cash forecast. A cheaper offer that arrives too late may not be a usable option.
Method and scope
All amounts above are hypothetical teaching figures in one currency, excluding tax unless stated otherwise. These are original scenarios, not market prices, benchmark targets or professional recommendations. The references support the underlying concepts, not the example assumptions. This AI-assisted explanation has not had independent professional review. Calculation methods and limitations.
Frequently asked questions
Should freight be spread across ordered or usable units?
For usable landed cost, include applicable freight in total cost and divide by expected usable units. Keep the order-level cash payment visible too.
Are leftovers automatically a saving?
No. Their benefit depends on future use, storage, condition and demand. If they have no usable or resale value, the job bears the full purchase cost.
Sources & references
- Manage your inventory — Australian Government — business.gov.au
