Cost price (C.P.):
The cost price is divided into two parts, namely, purchase price and overhead expenses.
The purchase price is the amount used up to buy things from a manufacturer.
The overhead expenses include the transport charges, worker wages, and other such charges that incur along the way.
\(\text{Cost price}\) \(=\) \(\text{Purchase price}\) \(+\) \(\text{Overhead expenses}\)
Consider a shoe manufacturing company.
It spends \(Rs.500\) on raw materials which is the product price.
It spends \(Rs.100\) on transport, \(Rs.150\) as labour charges and \(Rs.200\) goes in as electricity charges. These expenses are the overhead expenses.
So the cost price of a shoe would be the total sum of the product price and the overhead expenses.
\(\text{Cost price (C.P.)}\) \(=\) \(\text{Product price}\) \(+\) \(\text{Overhead expenses}\)
\(= 500 + 100 + 150 + 200\)
\(=\) \(Rs.\)\(950\)
Marked price (M.P.):
The dealer buys the commodity from the manufacturer. To make a profit, he marks a price higher than the cost price of the commodity. This newly arrived price is called the marked price or the tag price.
We are continuing with the previous example.
If the dealer buys the shoe for \(Rs.950\) and the dealer wishes to make a profit of \(Rs.300\), then he would have \(Rs.1250\) as the marked price.
\(\text{Marked price}\) \(=\) \(\text{Cost price}\) \(+\) \(\text{Profit intended}\)
\(= 950 + 300\)
\(= Rs.1250\)
A reduction in marked price mainly to attract customers is a discount.
Continuing with the previous example, we have:
Here the marked price is \(Rs.1250\) and the now the dealer wishes to attract the customer by giving discount of \(Rs.100\) on the marked price.
Discount offered \(=\) \(Rs.100\)
Selling price (S.P.):
Selling price is what the customer pays for the commodity after availing the discount.
Continuing with the previous example, we have:
Here the customer will receive the commodity after applying the discount amount if there are.
\(\text{Selling price}\) \(=\) \(\text{Marked price}\) \(-\) \(\text{Discount}\)
\(=\) \(Rs.1250 - Rs.100\)
\(=\) \(Rs.1150\)
Few more examples of selling price:
1. A customer buys a toothpaste worth \(Rs.40\).
2. A customer buys a mobile phone worth \(Rs.10000\).