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Cost price, selling price, and market price are the three important terms. Among these, cost price and selling price are included in the term accounting. The market price is related to business administration. Cost price and selling price are fixed while market price can vary during a certain period of time.
Cost Price:
Cost Price is the amount that includes fixed as well as variable expenses while calculating income or revenue under the concept of accrual basis of accounting which involves a time period of one year or more.
Cost Price = Fixed expense + Variable expense + Contribution Margin or Sales Volume x Marginal Contribution Margin
Selling Price:
Selling Price is the same as cost prices except it does not include any fixed expenses that are involved in this calculation. So in this calculation, it is only the sale of goods and products which are not included in the cost price.
Selling Price = Cost Price x Discount Rate
Margin:
What is Margin?
Margin – The difference between the selling price and cost price. In other words, selling price minus cost price equals margin. The margin is calculated by adding the margin part to cost price as follows: + Cost Price – Selling Price = Margin
Contribution Margin:
Contribution Margin or Contribution Revenue is the revenue received from selling goods and products which are not included in cost price. This revenue includes the sale of available goods, discounts, service charges, etc which will be paid to the firm owners.
Contribution Margin = Sales Receipt – Cost of Goods Sold
Market Price:
The market price is the selling price of a particular product or material in the market. The price depends on the factors like customer demand and supply, season, festivals, etc. In addition to that, competition between two or more sellers also affects the price of a product in a particular market. Many sellers offer discounts during seasonal holidays and festivals which attract customers’ attention in buying products with low prices but high quality. Sellers also offer gifts, complimentary and cash coupons to attract more buyers and increase the sales volume of their business consisting of products with various designs, specifications, prices, and qualities. Many sellers discount their products to increase the sales volume of their business.
Market Price = Selling Price – Cost of Goods Sold
Difference between cost price, selling price, and market price
1) Cost price and selling price are the terms related to accounting while the market price is related to business administration.
2) Cost price and selling price can be calculated using a time period of one year or more while market prices are calculated daily or weekly.
3) Selling price cannot be changed once it is fixed but can be changed in the cost price and market prices through discount, etc.
4) In Market Prices, the prices may vary from day to day depending on the demand and supply whereas, in cost & selling prices, the prices do not vary from day to day.
Conclusion:
The following terms were discussed in the given topic. The classification and classification are based on the difference between different terminologies which are cost price, selling price, market price, and contribution margin.
- Cost price: Can be classified as a fixed cost, variable cost, and Contribution Margin (Sales Receipt) 2. Selling price: Can be classified as a fixed cost, variable cost, and Contribution Margin (Sales Receipt) 3. Market price: Can be classified as a fixed cost, variable cost, and Contribution Margin (Sales Receipt) 4. Contribution margin: Can be classified as Cost Price, Selling Price, and Market Price
- Cost price and selling price are fixed while the market price is variable.
- In cost price, fixed and variable expenses are combined to calculate profit or revenue under the concept of accrual basis of accounting which involves a time period of one year or more.
- In selling price, fixed expenses are not included in the calculation. So in this calculation, it is only the sale of goods and products which are not included in the cost price.
- Market prices can increase or decrease depending upon different factors like demand-supply, seasonality, etc.
- Sales can be increased by offering discounts, gifts, compliments, and cash coupons.
- Contribution margin is the difference between the selling price and cost price.
