Cost price

In retail systems the Cost price represents the specific value that represents unit price purchased. This value is used as a key factor in determining profitability and in establishing the value of stock holding.

Cost prices appear in several forms.

Actual Cost. Last Cost. Average Cost. Net realizable value.

Cost price is used in establishing profitability in the following ways. Selling price (Excl VAT) less cost results in the profit in money terms. Profit / selling price (Excl) when expresses as a percentage produces (Gross Profit) or GP%

Actual Cost or Landed Cost In this calculation all expenses in aquiring an item are added to the cost of items to establish what the goods actually cost. Additions usually include freight, duty etc..

Last Cost. This is the actual value of the item when last purchased. Normally expressed in units excl VAT.

Average Cost. When new stock is combined with old stock, the new price often overstates the value of stockholding. The better method is to combine the total value of investment in stock, old and new and devide by the total number of units to calculate the average cost. This is a very accurate method of establishing stock holding.

Moving average cost. (MAC) A slight permutation on the above, with the average being calculated from the previous average and new price.

Net realizable value. Normally indicates the average value of an item in the marketplace. Often this cost is interchangeable with replacement cost.