As indicated earlier, the AE analysis method is appropriate for unit profit and cost calculations.  Some examples of this type of calculations are make or buy analysis and reimbursement analyses.

All unit profit/cost calculations involve computing the equivalent annual worth of the asset.  The unit worth is then computed by dividing the AE worth by the number of units to be produced or serviced each year during the life of the asset.    When this number is the same for each year over the life of the asset, the determination of the unit worth is straightforward.  The AE amount is divided by this number to get the unit worth.  In some instances, however, the number of units used or produced can be different.  When that happens, special care needs to be taken to ensure that the correct equivalent annual is computed.  Example 8.5 illustrates this case.

Make or buy analysis is an example of the application of a unit profit/cost calculation.  In this type of analysis the problem is to compute the unit cost of making something in-house so that a proper comparison with unit costs for buying the asset can be made.  Example 8.6 illustrates this method.  It should be noted that when deciding between making or buying something, non-economic factors may also come into play and they should be accounted for adequately.  The comment after Example 8.6 in the text discusses this point further.