# Cost Price

The price (amount) paid to purchase a product or the cost incurred in manufacturing a product is known as the cost price (CP) of that product.

Types of cost

**Fixed cost**As obvious from the name, it is that kind of cost which is fixed in all the cases.**Variable cost**Variable costs are those costs which vary according to the number of units produced.**Semi-variable cost**Semi variable costs are those costs which are fixed in one particular strata, but the costs varies among the different stratas.

One good example of fixed cost, variable cost and semi-variable cost is the bill we receive for the telephone connections at our home. A part of that bill, the rental, is fixed cost; and the rest of the part of the bill is calculated on the basis of the numbers of calls made.

# Selling Price

The price at which a product is sold is called the selling price (SP) of the product.

# Marked Price

The marked price or the mark-up price (MP) is the price which the shopkeeper/retailer fixes in anticipation of some discount they may be asked by a customer.

# List Price

List price or the tag price, as the name suggests, is the price that is printed on the tag of the article.For our calculations related to the concept of PLD, till the moment nothing is stated in the questions we would not see much difference between Marked Price and List price. This can be understood in the following example.

Suppose, the CP of an article is Rs 100 and the shopkeeper wants to earn a profit of 20%, i.e., he wants to have a profit of Rs 20. Now, he anticipates that a customer will ask for some discount and if he fixes the SP at Rs 120 he would not be able to give any discount to the customer. So, he now marks up his price over Rs 120 so that he can give some discount to his customer.

Remember that if nothing else is stated, then mark-up percentage is always calculated over CP.

Example

After selling an article at a discount of 50%, profit percentage obtained is 20%. What is the mark-up over CP?

Solution

Let us assume that CP = Rs 100.

So, SP = Rs 120.
Now, after giving a discount of 50% over MP, Rs 120 is the SP.

Using product stability ratio, 50%â†“ = 100%â†‘

So, MP = 100%â†‘ over SP = Rs 240
Hence, percentage mark-up = 140%

Alternatively, 0.5 MP = 1.2 CP

MP/CP = 1.2/0.5 = 2.4

So, percentage mark-up = Ã— 100

= (2.4 â€“ 1) Ã— 100 = 140%

Further, as we know

If SP > CP, then there will be a profit and if SP < CP, then there will be a loss.

SP â€“ CP = Profit

CP â€“ SP = Loss

Profit % = Profit/CP Ã— 100

Loss % = Loss/CP Ã— 100

Profit% or Loss % is always calculated upon CP, unless something else is mentioned.

It can be seen that whenever, there is a profit, then MP â‰¥ SP > CP.

However, when there is a loss, then we can not have some definite relationship between the above written three quantities.

So, SP = Rs 120.

Using product stability ratio, 50%â†“ = 100%â†‘

So, MP = 100%â†‘ over SP = Rs 240

Alternatively, 0.5 MP = 1.2 CP

MP/CP = 1.2/0.5 = 2.4

So, percentage mark-up = Ã— 100

= (2.4 â€“ 1) Ã— 100 = 140%

Further, as we know

If SP > CP, then there will be a profit and if SP < CP, then there will be a loss.

SP â€“ CP = Profit

CP â€“ SP = Loss

Profit % = Profit/CP Ã— 100

Loss % = Loss/CP Ã— 100

Profit% or Loss % is always calculated upon CP, unless something else is mentioned.

It can be seen that whenever, there is a profit, then MP â‰¥ SP > CP.

However, when there is a loss, then we can not have some definite relationship between the above written three quantities.

# Margin

When we calculate profit percentage as a percentage of SP, then it is known as margin.

# Calculating CP/SP Profit % or Loss %

If we say that there is a profit of 20%, then

CP Ã— 1.2 = SP

So, if CP = Rs 120, then SP = Rs 120 Ã— 1.2 = Rs 144

Or, if SP = Rs 144, then CP = 144/1.2 = Rs 120
(Needless to say that if there is a profit of 30%, then we will take 1.3 in the place of 1.2, and if there is a loss of 27%, then we will take 0.73 at the place of 1.2)

So, if there is a profit of R%, and CP = C, then,

SP =

And in case of loss of R%, SP =

Alternatively, we can use product stability ratio also to find out SP if CP is given.

So, the difference in profit = Rs 133.33

Example-2

Two shopkeepers sell some article for Rs 4000 each. A shopkeeper calculates his profit per cent on his CP and another calculates his profit per cent wrongly on SP. What is the difference in their actual profit if both claim to have a profit of 20%?

Solution

In 1st case, | In 2nd case |

SP = Rs 4,000 | SP = Rs 4,000 |

Profit = 20% of CP | Profit = 20% of SP |

CP = Rs 3,333.33 | CP = Rs 3,200 |

Profit = Rs 666.66 | Profit = Rs 800 |