Any service or product has its price and value. Although in everyday life, many confuse these two terms, using them as synonyms. Indeed, the two concepts are inextricably linked. So how does the price differ from the cost?
The meaning of the term "cost"?
This concept is more similar to the term cost. In fact, this is the equivalent of the cost of creating a product or service, including:
- cash;
- temporary;
- intellectual;
- production and others.
Simply put, any costs that, as a rule, are initially measured in physical units and then equated to cash, are equivalent.
There is also the concept of consumer value. This indicator reflects the individual requirements of a particular consumer to a particular service or product. Consumer value does not always coincide with the cash equivalent of costs incurred by the manufacturer or contractor.
It is very important to know that cost is a parameter that is constant for only a short period of time. For example, last year computers were cheaper by 2 thousand rubles, and this is due not only to inflation, but also to the fact that the motherboard has risen in price, the minimum wage has risen, and so on.
The concept of "price"
To understand how price differs from cost, you need to know the definition of each term. Price is the actual amount of money that the buyer is willing to give for the purchase of a particular product or service. In addition to costs, the buyer's margin is included in the price. The seller’s margin is determined individually and depends on many factors:
- fashion for products;
- seasonal demand;
- wholesale purchases;
- falling demand and others.
Therefore, the margin is always different, for example, fur coats - this is a seasonal product, in the warm season the demand for them falls, and the price, respectively, also, more precisely, the seller’s margin.
Price types
There are several classifications, according to the level of turnover they distinguish: wholesale and retail prices. As the name implies, retail prices are intended for “small” buyers, that is, those who purchase goods in a limited quantity, one or several units. Wholesale prices are for buyers who purchase large quantities of products. This price may equal the price of the manufacturer.
Depending on the type of control over the price level, there are:
- Regulated by law. In this case, the government can set a threshold or recommend a specific price to sellers, as well as set limits that are calculated on the basis of the minimum wage or the cost of a particular product;
- Unregulated by government.
There is also such a thing as “floating” or “moving” prices. Most often, such prices are used for long-term cooperation, for example, a contract has been concluded for the supply of certain products for a period of 3 years. Naturally, during this period the cost and price will change. Therefore, in such situations, not “solid” positions are established. In this case, the formation of the price of goods is carried out at the time of delivery of the goods, and not at the time of conclusion of the contract.
In the formation of retail prices can be published and estimated prices. The first are those that are entered in a catalog or price list. And settlement ones are those on which sale is carried out, and they can differ from catalog.
There is such a thing as seasonal price, most often it is used in the agricultural industry. Price in the summer tends to decline.
The price of imported goods often exists in two forms:
- net price, that is, the actual settlement between seller and buyer;
- gross price, that is, taking into account insurance, transportation and free.
Cost classification
Understanding how the price differs from the cost, you should know that a change in value necessarily involves the recalculation of costs.
Types of cost:
|
Market |
This value reflects the amount of money for which a product or service can actually be purchased. It is very important to separate the concepts of market price and value. The first concept defines only the average price position for a specific date and for a particular product. |
|
Recycling |
The most probable amount of money that can be received for the goods, which cannot be used without repair or restoration work. Such value is formed at the end of the useful life of the alienated property. |
|
Rated |
This value is typical for securities and reflects the share of tangible or intellectual assets in the issuer's authorized capital. The nominal price in this case consists of the nominal value and margin, in the amount of the desired profit from the transaction. |
|
Recovery |
This value reflects the amount of costs (required at market prices) that were at the time of the assessment. Most often used in insurance. |
|
Balance sheet |
It is used when purchasing a property object by an enterprise or equipment (i.e. fixed assets), it is determined by the amount for which the property was acquired. |
|
Liquidation |
This term can be defined as the most probable amount of money for which a certain product can be purchased for a specific period of time. For example, such a concept often appears in bankruptcy proceedings. |
There is also the concept of investment and special value.
Methods of calculating the cash equivalent of goods
To fully understand how the price differs from the cost, it should be understood that these two values are formed in completely different ways.
First of all, the cost depends entirely on the conditions of production and their changes, namely:
- how much labor productivity has increased or decreased;
- how much increased or decreased the amount of consumables needed to produce a particular product;
- changes in pay.
It becomes immediately clear that the development of scientific and technological progress directly affects the value of any product. If the production process is simplified, then its cost is reduced.
The price in its composition has a cost and a premium, the size of which depends on the wishes of the seller and a number of other factors, for example, on the level of competition in a particular market segment. To date, there are two pricing methods:
- full costs;
- direct costs.
The main ways to determine the cost
There are three methods of calculating value:
|
Profitable |
Based on expectations of maximizing revenue. The formula is as follows: V = D / R, D - is an indicator of net income, R - capitalization ratio (includes the number of obligations of the seller). |
|
Costly |
It is used in cases where the seller of the company does not receive a stable profit. First of all, they find the market value of the assets and deduct the obligations of the organization from this amount. The technique can still be divided into 2 subspecies: - method of net assets; - liquidation value method. |
|
Comparative |
The result of such a technique is too rough, therefore it is rarely applied in practice. |
The main ways to determine the market price
In addition to the fact that the entrepreneur wants to make a profit, he still has to justify the set price so that the fiscal authorities do not have any complaints. This method of determining market prices is also called pricing for tax purposes. The tax code clearly defines situations where tax authorities may interfere with the pricing process.
The easiest way in this case is to search for identical products. If in a particular industry a lot of transactions with identical goods or services are executed, then you can form a price based on data from official sources. This may be stock quotes or information from statistical government agencies.
Unique goods are much more difficult to evaluate, especially if this is done for tax purposes. For example, an entrepreneur has imported goods that have no analogues in the domestic market, it is clear that the price will be formed from the amount of the contract and the cost of delivery, but what to do with profit, how to evaluate it, while not falling under the scrutiny of fiscals? In this case, you can use the following formula:
Ts2 - (32 + P2) = Ts1, C2 - is the resale price to the following customers;
З2 - all costs incurred by the seller for the promotion of products (marketing and advertising companies);
P2 - the acquirer's income on resale.
If it is impossible to use the methodology with subsequent implementation, then you can resort to the standard costly method. The formula in this case is as follows:
З (costs) + П (seller’s profit) = Ц (market price).
Cost and cost
Price, cost and cost - these are 3 inextricably linked concepts, but not identical.
Cost is all the costs incurred by the manufacturer during production, based on the unit of goods. It:
- materials;
- wage;
- Electric Energy;
- overhead and other.
Cost, in turn, includes cost + a certain percentage of profitability, which is laid for profit. Profitability usually includes the amount of taxes to be paid. In fact, these two concepts come from each other, simply put, on the basis of the cost price is formed.
Cost is a characteristic of products of the first level, and the cost of the second (as a cost calculation) necessarily includes the amount of costs taken into account in the formation of cost.
