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CP Formula
The cost price formula, which is also known as CP Formula, is used to determine an item’s actual price. In other terms, it is the cost of each commodity that we buy. The selling price establishes the profitability with the aid of the CP Formula. As a result, one makes a profit if the initial value is less than the selling price, and one loses money if the original value is more than the selling price. In this article, we will explore two formulas for calculating the cost price, examine the variables involved, and solve several examples to enhance our understanding.
Quick Links
ToggleWhat is Cost Price?
The cost price refers to the total amount of money spent on producing goods or providing services before any profit is realized by the manufacturer or supplier. It is also known as the actual cost, average cost, or historical cost. The cost price encompasses all additional expenses associated with production, including real estate, materials, utilities, research and development, testing, worker salaries, and other overheads. Profit and loss are always determined by comparing the cost price to the selling price of a product or service.
What is Cost Price Formula?
Cost price is the price we pay to purchase a good, and it may be calculated using the two simple CP Formula shown in the graphic below
Formula 1: To determine if they made money when selling a product, we used the formula below.
CP = Selling Price – Profit
Formula 2: They use the following formula if they lose money when selling a product.
CP = Selling Price + Loss
Formula 3: The following is the formula for profit (gain) % and selling price:
CP = {100/(100 + Profit%)} × SP
Formula 4: The equation based on loss percentage and SP is as follows:
CP = {100/(100 – Loss%)} × SP
What is Marginal Cost Pricing?
Marginal cost pricing refers to the additional cost incurred to produce each extra unit of a product. The total cost of a commodity is categorized into fixed costs and variable costs. Marginal cost typically encompass variable costs and is added to fixed costs.
In marginal cost pricing, the price of a product is set at or slightly above the variable cost of producing it. This approach is adopted by companies when they are unable to sell the product at a higher price
Applications of Cost Price Formula
Pricing Strategy: Determining the cost price (CP) is crucial for setting competitive and profitable selling prices. Businesses utilize these formulas to strike a balance between covering costs and attracting customers.
Financial Planning: Accurate calculation of CP aids in budgeting, forecasting, and financial planning, ensuring efficient resource allocation within the business.
Profitability Analysis: Understanding the CP enables businesses to analyze their profit margins and make necessary adjustments to enhance profitability.
Market Competitiveness: Knowing the CP helps businesses remain competitive by setting prices that are both appealing to customers and sustainable for the business.
Examples on Cost Price Formula
Example 1: A toy costs $340 to sell, and the store owner makes $60 in profit. Utilise the cost price formula to determine the toy’s cost price.
Solution:
Here, selling price = $340 and profit = $60
Using the costprice formula, we get
CP = Selling Price – Profit
CP = $(340 – 60)
CP = $280
Example 2: An item was sold for $ 230 at a $20 loss. Determine what its cost price was using the cost price formula.
Solution:
Here, selling price = $230 and loss = $20
Using the costprice Formula, we get
CP = Selling Price + Loss
= $(230 + 20)
= $250
Example 3: Jamie loses 6% on a $900 chair sale. How much did she pay for it? Using the formula, calculate the cost price by using the formula?
Solution:
Given, Loss = 6%; SP = $900; CP = ?
If the loss is 6%,
it means that if the cost price is $100,
The loss incurred is $6.
If CP is $100, then SP is $94
When SP is 94, CP = $100
When SP is $900
CP = (100/94) × 900 = $957.44
∴ CP = $957.44
Example 4: Kavya sold a flat for 95 Lakh and earned a profit of 2%. Determine the price at which she purchased the flat.
Solution:
Given:
Profit percentage = 2%
Selling Price (SP) = 95 Lakh
Cost Price (CP) = ?
Using the formula for cost price when the profit percentage is given:
Cost Price (CP)=( 100/(100+Profit%))×SP
Substituting the given values:
CP=(100/100+2)×95 Lakh
CP=(100/102)×95 Lakh
Therefore, the cost price of the flat is:
CP=93.137 Lakh
So, Kavya purchased the flat for 93.137 Lakh.
FAQs (Frequently Asked Questions)
1. What is the Cost Price (CP) formula used for?
The Cost Price formula is a fundamental tool in business and finance used to ascertain the original price of a product or service. It helps in determining the expenses incurred by a business in producing goods or delivering services before any profit or loss is realized.
2. How is the Cost Price (CP) calculated when a profit is earned?
When a profit is earned, the Cost Price (CP) is calculated by subtracting the profit from the Selling Price (SP). This formula enables businesses to assess the initial investment or expenditure involved in acquiring or producing an item.
3. What is the total cost price?
The full cost price of a product is the price estimated by a company based on its direct cost per unit of output plus a markup to cover overhead costs and profits.
4. What is the difference Between Cost and Selling Price?
The cost price is the amount paid to buy an object, often known as the real price. The selling price, on the other hand, is the price at which the object is sold.
5. When a gain percentage is given, what is the CP Formula?
When the gain (profit) percentage and selling price are supplied, the Cost price formula = {100/(100 + Profit%)}
6. When a loss percentage is given, what is the CP Formula?
When a loss percentage and SP are provided, the costprice formula is stated as
The CP Formula = {100/(100 – Loss%)} × SP.
7. What is the Cost Price (CP) when a loss is incurred during a sale?
In the event of a loss incurred during a sale, the Cost Price (CP) is determined by adding the loss amount to the Selling Price (SP). This calculation provides insight into the original cost incurred by the seller, helping to evaluate financial performance.