Cost Price Formula - Definition, Examples and Solution

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.