Difference Between Price and Cost (2022)

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Price vs Cost Differences

The key difference between cost and price is the amount of expenditure incurred by the business on materials, labor, sales, utilities, and other business activities. In contrast, price refers to the amount that the business charges its customers for providing their goods and services to the customer, and the customer has to pay such an agreed amount to get the goods or services.

Price and cost are the terms that are frequently used and mentioned in the context of revenue, i.e., sales. They are used interchangeably in our normal day-to-day conversation, but when it comes to economics or business, each term takes on a separate meaning and must not be perplexed by one another.

Table of contents
  • Price vs Cost Differences
    • What is Price?
    • What is Cost?
    • Price vs. Cost Infographics
    • Key Differences Between Price and Cost
    • Comparative Table
    • Conclusion
    • Recommended Articles

What is the Price?

Technically speaking, a price can be termed as the amount of money a consumer or client must waive to acquire certain services or products. It also involves the future acquisition of the service or product if the client or consumer pays the said amount.

(Video) Difference in ,Price & Value in Cost Accounting II Theory of Costing Part 2 II 9717356614

Difference Between Price and Cost (3)

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What is the Cost?

A cost can be the amount paid to produce a service or product before it is sold or marketed to its intended clients or consumers. Looking at it this way, the cost would imply the amount of money involved in marketing, production, and distribution. The term can also refer to the money needed to maintain a service or product.

Price vs. Cost Infographics

Difference Between Price and Cost (4)

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Key Differences Between Price and Cost

  • Price is what you pay for services or goods that you acquire; Cost is the number of inputs that occur in producing the firm’s product.
  • The price will remain the same for all the consumer customers. Cost is also the same for all consumers or customers. However, the cost differs only for the firm that prepares it.
  • We estimate the price through a policy set up for the price. At the same time, we assess the actual expenditure on manufacturing that product.
  • The ups and downs in the market affect the cost and price of any product. The only difference is that changes happening in cost are outside the company’s scope, and it cannot do anything for the same. In contrast, a company can reduce its impact by reducing the product price, which remains in the hands of the company.
  • The ascertainment of price, as mentioned earlier above, is done with the view of the client or the consumer. At the same time, ascertainment of the cost is from the company’s or producer’s view.
  • If you purchase a brand-new vehicle like a car, the amount you will pay to the seller for its acquisition will be its price. At the same time, the amount invested in manufacturing that same car is its cost. Normally, the price of any service or goods will be more than its cost because the price includes the profit marginProfit Marginread more and the cost of preparing the product.

Comparative Table

BasisPriceCost
Basic DefinitionWe can define it as the amount a client or customer is willing to pay for a service or product.We can term it as the expense which incurs for selling a service or product by an organization. The costs that are involved in manufacturing can include the raw materials that are used in making that product.
NatureEvery Organization should determine the price that the customers are willing to pay for their service or product, while they also must be mindful of the cost of bringing that service or product to the market.For certain companies, the sum costs of making a product are listed under the cost of goods sold (COGSCOGSThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more), which is the total sum of the direct costsDirect CostsDirect cost refers to the cost of operating core business activity—production costs, raw material cost, and wages paid to factory staff. Such costs can be determined by identifying the expenditure on cost objects.read more that are involved in a production. These costs can include direct materials costsDirect Materials CostsDirect Material Cost is the total cost incurred by the company in purchasing the raw material along with the cost of other components including packaging, freight and storage costs, taxes, etc. that are related directly to the manufacturing and production of various products of the company.read more, such as raw materials and direct labor costs for the manufacturing plant.
Ranking (at business Level)Price comes after the determination of all the costs.The cost comes first that is before Price.
AscertainmentWe can ascertain it from the client’s or consumer’s perspective.We can ascertain it from the manufacturer’s or producer’s perspective.
ClassificationIt can be also be further classified as a bid priceBid PriceBid Price is the highest amount that a buyer quotes against the “ask price” (quoted by a seller) to buy particular security, stock, or any financial instrument. read more, selling price, buying price or transaction price etc.It can be also be further classified as a variable cost, fixed costFixed CostFixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. It is the type of cost which is not dependent on the business activity.read more or opportunity cost, etc.
In terms of ValueIt is a combination of cost, which is mostly production.These are lowered when they are compared with the cost in terms of value.

Conclusion

Price and cost are often used interchangeably in our normal daily conversation. However, as mentioned at the beginning of the article, the two terms have completely different meanings when applied in economics or business.

(Video) The Difference Between Price and Cost

  • Cost is the amount of money spent on different activities to make or maintain a service or product. In contrast, price, as told earlier, implies future acquisitions of the service or product.
  • Both refer to the element of money. In price, the use of money is to gain something. The cost will refer to the money in the production or manufacturing process like wages, labor, materials, capital, bills, and other transaction costs.
  • We ascertain the price by adding the production costs and the seller’s profits. In this context, a cost can be a subset or component of the price. In addition, the value of the cost will be lower than the value of the price.
  • The client or the consumer generally demands a price. Cost, on the other hand, is demanded by the seller. The price is a future income for the seller. On the contrary, cost represents all the past expenses.

Recommended Articles

This article is a guide to Price vs. Cost. Here we discuss the top differences between price and cost, infographics, and a comparison table. You may also have a look at the following articles –

  • Expense vs Expenditure -Differences
  • Cost Volume Profit Analysis
  • Sunk Cost Definition
  • Prime Cost
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