Cost Price
The cost price formula, which is also known as CP, is used to determine an item’s true price. In other terms, it is the cost of each commodity that we buy. The selling price establishes profitability with the aid of the cost price. As a result, you make a profit if the initial value is less than the selling price, and we lose money if the original value is more than the selling price. In order to better comprehend this, we will review two cost price formulas in this part, analyse the factors at play, and work through a few instances.
What is Marginal Cost Pricing?
Pricing at marginal cost refers to the extra or supplementary expense to build each additional unit. Fixed costs and variable costs are the two divisions of a commodity’s cost. The variable cost is always included in the marginal cost, which is typically added to fixed costs.
In marginal cost pricing, the cost to create a good or service is set at, or slightly above, the item’s price. Companies choose this strategy whenever they are unable to sell the article or product for a greater price.
The main drawback of including marginal cost is that it cannot be employed for an extended period of time.
Cost Price and Selling Price:
Cost Price: A product’s cost price is the amount spent to acquire it or the price at which it was created. The letter C.P. stands for the cost price.
Selling Price: The price at which a product is put up for sale is known as the selling price. The letter S.P. stands for the selling price.
Definition of Cost Price
The cost price is the sum of money used to produce goods or services before any profit is added for the manufacturer or provider. Other names for it include latest cost, average cost, and actual cost. The extra costs associated with production, real estate, materials, electricity, R&D, testing, worker salary, and other expenses are all included in the cost price. The cost price and the selling price of any thing are always used to determine profit and loss.
What is the Cost Price Formula?
Cost price is the price we pay to purchase a good, and it may be calculated using the two simple formulas shown in the graphic below:
Formula 1: To determine if we made money when we sold a product, we used the formula below.
Formula for cost price: Selling Price – Profit
Formula 2: We utilise the following formula if we lose money when selling a product.
Formula for cost price: Selling Price + Loss
Formula 3: The following is the formula for profit (gain) % and selling price:
Formula for cost price: 100/(100 + Profit%) SP.
Formula 4: The equation based on loss % and SP is as follows:
Formula for cost price: 100/(100 – Loss%) SP.
Question 1
An article was sold for $230 at a loss of $20. What was the cost price of the article using the cost price formula?
Solution:
The cost price formula is given by: Cost Price = Selling Price + Loss.
We know that the selling price of the article is $230 and the loss is $20. Substituting these values in the cost price formula, we get:
Cost Price = $230 + $20 Cost Price = $250
Therefore, the cost price of the article was $250.
Question 2
Jamie sells a chair for $900 and incurs a loss of 6%. What was the cost price of the chair using the cost price formula?
Solution:
The cost price formula is given by: Cost Price = Selling Price / (1 – Loss%) .
We know that Jamie sold the chair for $900 and incurred a loss of 6%. Substituting these values in the cost price formula, we get:
Cost Price = $900 / (1 – 0.06) Cost Price = $957.45 (rounded to two decimal places)
Therefore, the cost price of the chair was $957.45 approximately.
Question 3
A shopkeeper earns a profit of $60 by selling a toy for $340. What was the cost price of the toy using the cost price formula?
Solution:
The cost price formula is given by: Cost Price = Selling Price – Profit.
We know that the selling price of the toy is $340 and the profit earned by the shopkeeper is $60. Substituting these values in the cost price formula, we get:
Cost Price = $340 – $60 Cost Price = $280
Therefore, the cost price of the toy was $280.
When the selling price and gain (profit) percentage are specified, the cost price formula is: cost price = 100/(100 + profit%) SP.
A company will determine a product’s full cost price based on its direct cost per unit of output plus a markup to account for overhead costs and profits.
Cost price, often known as the actual price, is the sum paid to purchase an object. The selling price, however, is the cost at which the object is offered for sale.
When loss percentage and SP are provided, the cost price formula is written as cost price formula = 100/(100 – Loss%) SP.
