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The Cost Price formula, often denoted as CP, is a method used to determine the actual price of an item, which is the amount paid to purchase a commodity. Cost price plays a crucial role in assessing profitability relative to the selling price. If the cost price is lower than the selling price, it results in a profit, while if the cost price exceeds the selling price, it leads to a loss. In this section, we will explore two cost price formulas, analyze the variables involved, and work through examples to gain a deeper understanding of this concept.
Definition of Cost Price
The cost price, often referred to as the actual cost, last cost, or average cost, represents the total expenditure incurred in producing goods or services before factoring in any profit for the manufacturer or producer. It encompasses various expenses, such as production costs, property expenses, material costs, energy expenses, research and development expenses, testing expenses, worker salaries, and any other outlays that need to be covered. Both profit and loss calculations are based on the cost price and the selling price of a product or item.
What is the Cost Price Formula?
The cost price, representing the amount paid to purchase a commodity, can be determined using two fundamental formulas outlined below:
Cost Price Formula
Formula 1: When a profit is earned upon selling a product, the cost price is calculated using this formula.
Cost Price Formula = Selling Price – Profit
Formula 2: In cases where a loss is incurred during the sale of a product, the cost price is determined using this formula.
Cost Price Formula = Selling Price + Loss
Formula 3: The formula for calculating the cost price using the profit percentage and the selling price is as follows:
Cost Price Formula = {100/(100 + Profit%)} × SP (Selling Price).
Formula 4: Likewise, the cost price can be calculated using the loss percentage and the selling price with this formula:
Cost Price Formula = {100/(100 – Loss%)} × SP (Selling Price).
These formulas provide methods for determining the cost price based on different scenarios involving profit, loss, profit percentage, and loss percentage.
Also Check –Factors and multiples Formula
Examples on Cost Price Formula
Example 1: A toy is sold for $340, and the shopkeeper earns a profit of $60. Calculate the cost price of the toy using the cost price formula.
Solution:
Given: Selling price (SP) = $340, Profit = $60
Using the cost price formula:
Cost Price (CP) = Selling Price – Profit
CP = $340 – $60
CP = $280
Answer: The cost price of the toy is $280.
Also Check –Volume of a Cylinder Formula
Example 2: An article is sold for $230 at a loss of $20. Calculate the cost price of the article using the cost price formula.
Solution:
Given: Selling price (SP) = $230, Loss = $20
Using the cost price formula:
Cost Price (CP) = Selling Price + Loss
CP = $230 + $20
CP = $250
Answer: The cost price of the article is $250.
Also Check –Rational Number Formula
Example 3: Jamie sells a chair for $900 and incurs a loss of 6%. Find the purchase price (cost price) of the chair using the formula.
Solution:
Given: Loss = 6%, Selling price (SP) = $900, CP = ?
If the loss is 6%, it means that for a cost price of $100, the loss is $6.
So, for a CP of $100, SP = $94.
When SP is $94, CP = $100.
Now, when SP is $900:
CP = (100/94) × $900 = $957.44
Answer: The cost price of the chair is $957.44.
Cost Price Formula FAQs
Q1. What is the cost price (CP) formula?
Ans. The cost price (CP) formula is used to calculate the original price of a commodity or item. It can be expressed as:
CP = SP - Profit (When a profit is earned)
CP = SP + Loss (When a loss is incurred)
CP = {100 / (100 + Profit %)} × SP (Using profit percentage)
CP = {100 / (100 - Loss %)} × SP (Using loss percentage)
Q2. When do we use the cost price formula?
Ans. The cost price formula is used when you want to determine the original price (cost price) of an item based on the selling price and either profit or loss incurred during a transaction.
Q3. What is the significance of knowing the cost price?
Ans. Understanding the cost price is essential for businesses and individuals to assess profitability. It helps in determining whether a transaction resulted in a profit or loss.
Q4. Can the cost price formula be used for calculating profit or loss percentage?
Ans. Yes, the cost price formula can be used to calculate profit or loss percentages. By rearranging the formula, you can find these percentages.
Q5. Are there any other factors that can affect the cost price?
Ans. Yes, the cost price can be influenced by various factors such as production costs, material prices, labor expenses, and overhead costs.
Q6. How is the cost price formula applied in real-life scenarios?
Ans. The cost price formula is commonly used in business and finance to determine the original purchase price of goods, helping businesses evaluate their profit margins and make pricing decisions. It is also used by individuals for personal financial analysis.
