In retail systems, the cost price represents the specific value that represents

unit price A product's average price is the result of dividing the product's total sales revenue by the total units sold. When one product is sold in variants, such as bottle sizes, managers must define "comparable" units. Average prices can be calculated b ...

purchased. This value is used as a key factor in determining

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

, and in some stock market theories it is used in establishing the value of stock holding.

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 Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

in money terms. * Profit / selling price (excluding tax) when expressed as a percentage produces (

gross profit For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes ...

) or GP%. *

Expense An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

net sales In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sa ...

yields a percentage that when used as the target margin will produce

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 Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

is combined with old stock, the new

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

often overstates the value of stock holding. The better method is to combine the total value of

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

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 In mathematics, a permutation of a set can mean one of two different things: * an arrangement of its members in a sequence or linear order, or * the act or process of changing the linear order of an ordered set. An example of the first mean ...

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 A marketplace, market place, or just market, is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a marketplace may be described as a ''souk'' (from ...

. Often this cost is interchangeable with

replacement cost The term replacement cost or replacement value refers to the amount that an entity would have to pay to replace an asset at the present time, according to its current worth. In the insurance industry, "replacement cost" or "replacement cost valu ...

References

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 {{Authority control Costs