- Cost price
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.
Cost prices appear in several forms, such as Actual Cost, Last Cost, Average Cost and Net realizable value.
cost price is also known as c p it is the original price of any item who bought it Cost price is used in establishing profitability in the following ways:
- Selling price (Excl. Tax) less cost results in the profit in money terms.
- Profit / selling price (Excl. Tax) when expressesd as a percentage produces (Gross Profit) or GP%
- Expense / Net Sales yields a percentage which when used as the target margin will produce gross profit.
Actual Cost or Landed Cost In this calculation all expenses in acquiring an item are added to the cost of items to establish what the goods actually cost. Additions usually include freight, duty etc..
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) A slight permutation on the above, with the average being calculated from the previous average and new price.
Net Realizable Value
Normally indicates the average value of an item in the marketplace. Often this cost is interchangeable with replacement cost.
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