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Price and cost

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Raheela Fardous Sultani

The document discusses the differences between price and cost from an accounting perspective. It defines price as the amount customers pay for a product, representing the value of what they receive. Cost is defined as the amount spent by a business to produce a product, including variable and fixed costs. An example breaks down the various costs that determine the $1.30 price of a chocolate bar, such as raw materials, capital, labor, and profit.

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Mangrial accounting Submitted by: Raheela fardoos Submitted to Prof. Asher Ilyas 8/21/2014
The price: The price is the amount customers pay for a product. When you pay a price for something, the price represents the value of what you have to give up in order acquiring a product or service. Example: If an MP3 player is priced at $60, it means I must give up that amount of money to acquire that product. The cost: The cost is the amount spent by a business making the product. Cost is often split into two elements: the variable cost (costs that vary in proportion to the quantity being made) and fixed costs (costs that are required for production to take place but which do not vary as output varies). Or Cost refers to the amount paid to the produce a good or service. The cost represents the sum of the value of the inputs in production land, labor, capital and enterprise. Example: The image below shows how the price we pay is made up for a chocolate bar. This chocolate bar is priced at $1.30. The segments show an estimate of how this price might be arrived at.
The raw materials will include the cocoa, sugar, milk, honey, hazelnuts, flavouring and colour that are used to make the chocolate bar. The capital will include all the buildings and factories that make up the Cadbury's business, the machinery, equipment used in the manufacture of the bar as well as all the vehicles and so on involved in the distribution of the finished product and the offices and administration buildings that support the business. Labour includes not only those who are involved directly in the making of the bars but all the sales staff, administration staff, management, marketing teams and so on that are employed by Cadbury. The profit is the reward for enterprise. It is the amount left over when all the costs have been paid. These represent the costs of production. The price of this chocolate bar is the amount of money that I have to give up to buy. In this example, this is $1.30 as represented by the coins below.

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Price and cost

  • 1. Mangrial accounting Submitted by: Raheela fardoos Submitted to Prof. Asher Ilyas 8/21/2014
  • 2. The price: The price is the amount customers pay for a product. When you pay a price for something, the price represents the value of what you have to give up in order acquiring a product or service. Example: If an MP3 player is priced at $60, it means I must give up that amount of money to acquire that product. The cost: The cost is the amount spent by a business making the product. Cost is often split into two elements: the variable cost (costs that vary in proportion to the quantity being made) and fixed costs (costs that are required for production to take place but which do not vary as output varies). Or Cost refers to the amount paid to the produce a good or service. The cost represents the sum of the value of the inputs in production land, labor, capital and enterprise. Example: The image below shows how the price we pay is made up for a chocolate bar. This chocolate bar is priced at $1.30. The segments show an estimate of how this price might be arrived at.
  • 3. The raw materials will include the cocoa, sugar, milk, honey, hazelnuts, flavouring and colour that are used to make the chocolate bar. The capital will include all the buildings and factories that make up the Cadbury's business, the machinery, equipment used in the manufacture of the bar as well as all the vehicles and so on involved in the distribution of the finished product and the offices and administration buildings that support the business. Labour includes not only those who are involved directly in the making of the bars but all the sales staff, administration staff, management, marketing teams and so on that are employed by Cadbury. The profit is the reward for enterprise. It is the amount left over when all the costs have been paid. These represent the costs of production. The price of this chocolate bar is the amount of money that I have to give up to buy. In this example, this is $1.30 as represented by the coins below.