Cost Price Formula

The cost price formula is used to calculate the actual price of an item and can also be written as CP. In other words, it is the amount we pay to purchase any commodity. The cost price helps in establishing profitability through the selling price. This means, if the original value is less than the selling price, then you earn a profit and if the original value is greater than the selling price, then we incur a loss. In this section, we will be discussing two cost price formulas, understand the variables involved, and solve a few examples to understand this better.

Definition of Cost Price

The amount of money that is spent to produce goods or services before any profit is added for the manufacturer or producer is defined as the cost price. It is also referred to many names such as actual cost, last cost or average cost. A cost price includes all the extra pay including production, property costs, materials, power, research and development, testing, worker wages, and anything else that must be paid for. Profit and loss are always calculated on the basis of the cost price and the selling price of any item.

What is the Cost Price Formula?

Cost price is the amount we pay to buy a commodity and it is computed by two basic formulas given in the image below:

Formula 1: If we earn a profit while selling a product, we use the following formula.

Cost price formula = Selling Price - Profit

Formula 2: If we incur a loss while selling a product, we use the following formula.

Cost price formula = Selling Price + Loss

Formula 3: The formula using gain (profit) percentage and selling price is given as,

Cost price formula = {100/(100 + Profit%)} × SP.

Formula 4: The formula using loss percentage and SP is given as,

Cost price formula = {100/(100 – Loss%)} × SP.

Examples on Cost Price Formula

Example 1: The selling price of a toy is $340 and the profit earned by the shopkeeper is $60. Find the cost price of the toy using the cost price formula.

Solution:

Here, selling price = $340 and profit = $60
Using the cost price formula, we get
CP = Selling Price - Profit
= $(340 - 60)
= $280

Answer: The CP of the toy is $280

Example 2: An article was sold for $ 230 at a loss of $ 20. Using the cost price formula can you calculate what was its cost price?

Solution:

Here, selling price = $230 and loss = $20
Using the cost price Formula, we get
CP = Selling Price + Loss
= $(230 + 20)
= $250

Answer: The cost price of the article is $250

Example 3: On selling a chair for $900, Jamie loses 6%. For how much did she purchase it? Calculate the cost price by using the formula.

Solution:

Given, Loss = 6%; SP = $900; CP = ?
If loss is 6%, it means that if the cost price is $100, the loss incurred is $6.
If CP is $100, then SP is $94
When SP is 94, CP = $100
When SP is $900
CP = (100/94) × 900 = $957.44
∴ CP = $957.44
Answer: The cost price of the chair is $957.44.