Cost price explained

In retail systems, the cost price represents the specific value that represents unit price purchased. This value is used as a key factor in determining profitability, and in some stock market theories it is used in establishing the value of stock holding.^{[1] [2] [3]}

Forms

Cost prices appear in several forms, such as actual cost, last cost, average cost, and net realizable value.

Cost price

Cost price is also known as CP. cost price is the original price of an item. The cost is the total outlay required to produce a product or carry out a service. Cost price is used in establishing profitability in the following ways:

• Selling price (excluding tax) less cost results in the profit in money terms.
• Profit / selling price (excluding tax) when expressed as a percentage produces (gross profit) or GP%.
• Expense / net sales yields a percentage that when used as the target margin will produce gross profit.

Actual cost

In calculating actual or landed cost, all expenses incurred in acquiring an item are added to the cost of items in order to establish what the goods actually cost. Additions usually include freight, duty, etc.

Last cost

This is the actual value of the item when last purchased, normally expressed in units.

Average cost

When new stock is combined with old stock, the new price often overstates the value of stock holding. The better method is to combine the total value of investment in stock, old and new, and divide by the total number of units to calculate the average cost. This is a very accurate method of establishing stock holding.

Moving average cost

Moving average cost (MAC) is a slight permutation of the above, with the average being calculated from the previous average and new price.

Net realizable value

The net realizable value normally indicates the average value of an item in the marketplace. Often this cost is interchangeable with replacement cost.

Bibliography

• Kurt Tecklenburg: Die Selbstkosten des Eisenbahnbetriebes. In: ZVDE, 61, 7. April 1921, S. 260
• Otto Schulz-Mehrin: Vereinfachte Selbstkosten- und Preisberechnung zur Berücksichtigung der Geldentwertung. In: Maschinenbau/Wirtschaft, Heft 24, 15. September 1923, S. 975 ff.
• Eugen Schmalenbach: Grundlagen der Selbstkostenrechnung und Preispolitik. 1925, S. 52
• Hans Müller-Bernhardt: Industrielle Selbstkosten bei schwankendem Beschäftigungsgrad. 1925
• Klaus Rumer: Erfolgsstrategien für mittelständische Unternehmen im internationalen Wettbewerb. 1998, S. 56
• Günter Wöhe: Einführung in die Allgemeine Betriebswirtschaftslehre. 25. Auflage. 2010, S. 920
• Josef Kloock: Selbstkosten. In: Wolfgang Lück: Lexikon der Betriebswirtschaft. 1990, S. 1034
• Harry Zingel: Lehrbuch der Kosten- und Leistungsrechnung. 2004, S. 69
• Wolfgang Hilke: Bilanzpolitik. 1991, S. 115 f.
• Bundesgerichtshof, Urteil vom 14.07.1965 - "Einführungsangebot", Ib ZR 81/63
• Bundesgerichtshof, Urteil vom 08.01.1960 - "Schleuderpreise", I ZR 7/59
• Bundesgerichtshof, Urteil vom 31.01.1979 - "Verkauf unter Einstandspreis I", I ZR 21/77

Notes and References

1. Web site: COST PRICE | English meaning - Cambridge Dictionary. Mar 18, 2024.
2. Book: Essential Quantitative Aptitude for Competitive Exams . Rajat Vijay Jain. 2nd . Disha Publications . Dec 24, 2019 . ... COST. PRICE. (CP). The total amount paid or expended in either purchasing an object (or a service) or producing an object (or a service) is known as its Total Cost Price of that object (or the service) for purchaser or producer .... 123. 978-93-89187-99-1 .
3. Book: Lundgren, Allen L. . Cost-price: A Useful Way to Evaluate Timber Growing Alternatives . 1973 . North Central Forest Experiment Station, Forest Service, U.S. Department of Agriculture . en.