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Selling Price

Introduction

Every day, we come across several instances when we must compare or calculate items, especially when products are sold or bought. Hence, the topic of price can be sensitive. Food may not sell, customers may complain, or they may decide not to return if it is priced too expensive. The customers might believe they did not get their money’s worth. As an alternative, if food is inexpensive and the company does not make the needed adjustments, it may suffer financial harm and face challenges in the future.

In this article, we will define “selling price” and look at several examples with solutions to help us understand how to answer questions related to the selling price.

What is the Selling Price?

Definition

The selling price is the cost incurred by the consumer to purchase the good. The amount a buyer actually pays to purchase a good or service is known as the selling price. This price is greater than the cost of the items and includes a profit margin.

The selling price is essential for determining the revenue a company must generate to make a certain profit margin.

When determining appropriate selling pricing, businesses often consider a variety of aspects and may ask questions like:

How much are customers ready to spend on a product or service?
What is a reasonable price that supports the targets of sales and revenue?
What should the pricing be to compete in the market?

One of these variables may take priority over the others, depending on the type of business you run and the products you sell. To help you choose the price you should charge for your goods, the average selling price might serve as a summary of these factors.

The Formula for Calculating the Selling Price

The basic formula for calculating selling price helps to determine where to start your product pricing based on the outcome. You can then select the fairest selling price for your item by using this price point in addition to other factors like competitor prices.

Selling Price Formula:

SP =  CP + DP

or

Selling Price = Cost Price + Desired Profit Margin

The selling price is the revenue. The cost includes the expenses incurred to produce or purchase the goods to sell. What you aim to earn is the desired profit margin.

Understanding how to calculate selling price is essential since a business won’t survive if it does not turn a profit and establish a place in the market. In other words, calculating a product’s selling price effectively benefits both the business and the customers. If done correctly, the business gets a fair price, and the customers get a good deal.

Selling Price vs Cost Price

The selling price is the amount a buyer actually pays to purchase an item. On the other hand, cost price includes the expenses to produce the item, such as what the company pays the supplier. 

Cost and selling prices are essential factors in establishing a business’s profitability. A business will suffer a loss if its selling price is less than its cost price. A business is said to profit if the selling price exceeds the cost price. Thus, we have,

Profit: Selling Price > Cost Price

Loss: Selling Price < Cost Price

Break-even: Selling price = Cost Price  

A profit of zero is considered to be breaking even, or neither a profit nor a loss. In some circumstances, businesses may need to reduce their pricing in order to compete effectively in the market.   

How to Calculate Selling Price

Using the selling price formula:  Selling price = Cost + Desired Profit Margin, we will have these steps to calculate the selling price.

Step 1: Calculate the cost price per item or how much the business pays for each item. For example, a young entrepreneur is into buying and selling bed sheets. If he purchases 200 bedsheets for \$1000, then the cost per item is \$5. 

Cost Price=\$1000÷200=\$5

Step: 2: Identify the profit margin you desire or the percentage of the cost price of each item you hope to earn. Let us say, for instance, that the young entrepreneur determines the profit margin is 20%. Since the cost per item is \$5, he must multiply this amount by 20% or ( 0.35×5 ) to get the desired profit margin of \$1.75.

Desired Profit Margin=\$5×0.35=\$1.75

Step 3: Fill in the formula using the calculated cost price and desired profit margin. For example,

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$5 + \$1.75

Selling Price = \$6.75

Hence, the young entrepreneur must sell each bedsheet at \$6.75.

Profit vs Loss

To determine if a transaction is profitable or not, the words profit and loss are used. Profit is the difference between the selling price and the cost price when the selling price exceeds the cost price. In contrast, a loss is referred to when the cost price is greater than the selling price.

Profit = Selling Price – Cost Price

Loss = Cost Price – Selling Price

Let us say, for example, we have the selling price of \$20, and the cost price is \$15. In this case, since the selling price is greater than the cost price ( SP > CP ), then we can say that this is a profit. In this case, the product was sold at \$5 higher than the cost price. 

Profit = Selling Price – Cost Price

Profit = \$20 – \$15

Profit = \$5

Thus, the profit incurred is \$5.

If we have a cost price of \$12 and a selling price of \$10, then we can say this is a loss since the selling price is less than the cost price ( SP < CP ). In her, it has a loss of \$2.

Loss =Cost Price – Selling Price

Loss  = \$12 – \$10

Loss = \$2

Thus, the loss incurred in the transaction is \$2.

Profit and Loss Percentage Formula

It is sometimes turned into a percentage once the profit or loss has been determined. In the form of a percentage, it is used to express the total amount of profit or loss. 

Profit Percentage=$\frac{Profit}{Cost\: Price}$×100

Loss Percentage=$\frac{Loss}{Cost\: Price}$×100

Let us say, for instance, we want to find the profit and the profit percentage in a transaction if the cost of the product is \$25 and it sold at \$60. Here, the cost price is \$25, and the selling price is \$60.

To find the profit we have,

Profit = Selling Price – Cost Price

Profit = \$60 – \$25

Profit = \$35

Using the profit percentage formula, let us use Profit = \$30 and the Cost Price = \$25.

Profit Percentage=$\frac{Profit}{Cost\: Price}$×100

Profit Percentage=$\frac{\$35}{\$25}$×100

Profit Percentage=1.4×100

Profit Percentage=140%

Therefore, the profit is \$35, and the profit percentage incurred in the transaction is 140%.

Markup Percentage

Here is the formula for getting the markup percentage:

Markup Percentage=$\frac{Selling\: Price-Unit\: Cost}{Unit\: Cost}$×100%

This means we must take the difference between the selling price and the unit cost and then divide that number by the unit cost. To determine the percentage, multiply by 100.

For example, an item costs \$12 to produce, and the selling price is \$18. Then we have,

Markup Percentage=$\frac{\$18-\$12}{\$12}$×100%

Markup Percentage=$\frac{\$6}{\$12}$×100%

Markup Percentage=0.50×100%

Markup Percentage=50% 

It is a good idea to mark up your goods or services by 50% to ensure that you’re making enough money to cover production costs and a profit on top of that. If the margins are too thin, you might barely break even after production expenses.

Examples

Example 1

A business purchases and resell women’s shirts. Suppose they have a bulk order of 300 shirts for \$1500 and its desired profit margin is 30%. Find the selling price of each item.

 Solution:

Step 1:  Calculate the Cost Price

Since the business paid \$1800 for 300 shirts, then the cost per item is \$6

Cost Price=\$1800÷300=\$6

Step 2: Calculate the Profit Margin

Since the business’ desired profit margin is 30%, then it hopes to earn \$1.8 per sold shirt.

Desired Profit Margin=\$6×0.30=\$1.80

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$6 + \$1.80

Selling Price = \$7.80

The business must set the selling price of each shirt at \$7.80 to achieve its desired revenue and cover the expenses.

Example 2

Suppose a product costs a business \$11, and it wants to have 25%. Calculate the selling price of the product. 

 Solution:

Step 1:  Calculate the Cost Price

The business paid \$11 per product.

Cost Price=\$11

Step 2: Calculate the Profit Margin

The desired profit margin of the business is 25%. It hopes to earn \$2.75 per sold product.

Desired Profit Margin=\$11×0.25=\$2.75

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$11 + \$2.75

Selling Price = \$13.75

For the business to generate the desired revenue and pay the costs, each product’s selling price must be set at \$13.75 per item.

Example 3

Martin bought a machine that cost him \$1260 and sold it at a profit of 30%. Find the selling price of the sold machine

Solution:

Step 1:  Calculate the Cost Price

Martin paid \$1260 for the machine.

Cost Price=\$1260

Step 2: Calculate the Profit Margin

The machine was sold at 30% profit. 

Desired Profit Margin=\$1260×0.30=\$378

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$1260 + \$378

Selling Price = \$1638

Thus, the machine’s selling price is \$1638.

Example 4

Hugo Industries produces products at the cost of \$40 each. If the products are sold to distributors at \$70 each, find the markup percentage based on cost.

Solution:

The selling price is \$70 while the unit cost is \$40. Let us use the formula below to solve the problem.

Markup Percentage=$\frac{Selling\: Price-Unit\: Cost}{Unit\: Cost}$ × 100%

Markup Percentage=$\frac{\$70-\$40}{\$40}$ × 100%

Markup Percentage=$\frac{\$30}{\$40}$ × 100%

Markup Percentage=0.75 × 100%

Markup Percentage=75%

Hence, the markup percentage is 75%.

Example 5

Marivic bought five carpets for \$450 and made a profit of 30% after reselling them. What was the selling price of each carpet?

Solution:

Solution:

Step 1:  Calculate the Cost Price

Marivic paid \$450 for each carpet, then the cost price for five carpets is \$2250.

Cost Price=\$450×5=\$2250

Step 2: Calculate the Profit Margin

The carpets were sold at 25% profit. 

Profit Margin=\$2250×0.30=\$675

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling Price = Cost Price + Profit Margin

Selling Price = \$2250 + \$675

Selling Price = \$2925

Thus, the selling price of each carpet is $\frac{\$2925}{5}$ or \$585.

Example 6

Read each statement carefully and fill in the blanks with the correct answer.

( a ) Selling Price = _____________ + Desired Profit Margin

( b ) Cost Price = _______________ – Desired Profit Margin

( c ) Cost Price + __________________ = Selling Price

( d ) Selling Price – Desired Profit Margin = _________________

Answers:

( a ) Selling Price = Cost Price + Desired Profit Margin

( b ) Cost Price = Selling Price – Desired Profit Margin

( c ) Cost Price + Desired Profit Margin = Selling Price

( d ) Selling Price – Desired Profit Margin = Cost Price

Example 7

Alex sold his bicycle at a loss of \$120. He bought it for \$850. Calculate his selling price and loss percentage.

Solution:

This scenario shows that the cost price is greater than the selling price. The cost price is \$960, and the loss is \$120. Remember that we have the formula: Loss = Cost Price – Selling price; hence to calculate the selling price, we may use,

Selling price=Cost Price-Loss

Using the values to the formula we have,

Selling Price=\$960-\$120=\$840

Here is how to find the loss percentage,

Loss Percentage= $\frac{Loss}{(Cost Price)}$ × 100

Loss Percentage= $\frac{\$120}{\$960}$ × 100

Loss Percentage= 0.125×100

Loss Percentage=12.50 %

Therefore, Alex sold the bicycle at \$840 with a loss percentage of 12.50%.

Example 8

A publisher offers a monthly subscription to their 10 000 readers of electronic books. Their desired monthly profit margin is 40% and has a total cost price of \$56500 that include content creation, marketing, operational, internet expenses, etc. Calculate the selling price for the subscription service.

Solution:

Step 1:  Calculate the Cost Price

The cost price of \$56500 includes all expenses like content creation, marketing, operational, internet expenses, etc.

Cost Price=\$56500

Step 2: Calculate the Profit Margin

The desired profit margin is 40%.

Desired Profit Margin=\$56500×0.40=\$22600

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$56500 + \$22600

Selling Price = \$79100

Since there are 10,000 readers, this means that the monthly subscription fee of each reader is \$7.91.

Summary

The selling price is the cost incurred by the consumer to purchase the good. The amount a buyer actually pays to purchase a good or service is known as the selling price.

Cost price includes the expenses to produce the item

Profit: Selling Price > Cost Price

Loss: Selling Price < Cost Price

Breakeven:Selling price = Cost Price  

Selling Price Formula:

Selling price = Cost + Desired Profit Margin

Markup Percentage Formula:

Markup Percentage=$\frac{Selling\: Price-Unit\: Cost}{Unit\: Cost}$×100%

Profit and Loss Formula ( given the selling price and cost price ):

Profit = Selling Price – Cost Price

Loss = Cost Price – Selling Price

Profit and Loss Percentage Formula:

Profit Percentage=$\frac{Profit}{Cost\: Price}$×100

Loss Percentage=$\frac{Loss}{Cost\: Price}$×100

Frequently Asked Questions on Selling Price (FAQs)

How do selling price and cost price differ from one another?

The selling price is the amount a buyer actually pays to purchase an item. On the other hand, cost price includes the expenses to produce the item, such as what the company pays the supplier. 

Cost and selling prices are essential factors in establishing a business’s profitability. A business will suffer a loss if its selling price is less than its cost price. A business is said to profit if the selling price exceeds the cost price.

What is the profit margin?

One of the often-used profitability indicators to determine how profitable a business is the profit margin. It displays the proportion of sales that have generated profits.

What is the formula for calculating the selling price?

Here is the basic selling price formula:.`

SP = CP +  DP

or

Selling price = Cost Price + Desired Profit Margin.

What are the steps in calculating the selling price?

These are the basic steps in calculating the selling price given the cost price and the desired profit margin.

Step 1: Calculate the cost price per item or how much the business pays for each item. 

Step 2: Identify the profit margin you desire or the percentage of the cost price of each item you hope to earn. 

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

As an example, a seller buys his products from a supplier at \$15 each. Calculate what should be his selling price if his desired profit is 30%.

Solution:

Step 1: Calculate the cost price per item or how much the business pays for each item. 

The seller pays \$15 per item, thus, 

Cost Price=\$15

Step 2: Identify the profit margin you desire or the percentage of the cost price of each item you hope to earn. 

The desired profit margin is 30%; hence, we have,

Desired Profit Margin= 0.30× \$15 =\$4.50

Step 3: Fill in the formula using the calculated cost price and desired profit margin.

Selling price = Cost Price + Desired Profit Margin

Selling Price = \$15 + \$4.50

Selling Price =\$19.50

Therefore, if the desired profit margin is 30% with a cost price of \$15, a seller must use the selling price of \$19.50. 

What is the importance of selling price?

Pricing is essential because it establishes the value that justifies producing and selling your product to customers. Customers can determine whether an item is worthwhile their time and money by looking at the selling price. Customers use selling prices to decide which things they can purchase.

Price increases may result in a slight loss in sales volume, but margin increases can help you make up for the lost volume with higher overall profits. If your sales increase significantly, lowering your prices can boost your profits while reducing your cost of goods sold per unit.

Understanding how to calculate selling price is essential since a business won’t survive if it does not turn a profit and establish a place in the market. In other words, calculating a product’s selling price effectively benefits both the business and the customers. If done correctly, the business gets a fair price, and the customers get a good deal.

What distinguishes a profit from a loss?

To determine if a transaction is profitable or not, the words profit and loss are used. Profit is the difference between the selling price and the cost price when the selling price exceeds the cost price. In contrast, a loss is referred to when the cost price is greater than the selling price.

Profit = Selling Price – Cost Price

Loss = Cost Price – Selling Price

Examples

( a ) Erica bought cloth for \$250 and spent \$60 on stitching a shirt. She sold the shirt for \$550. Find the profit.

Solution:

The selling price is \$550 while the total cost price ( \$250 + \$60 ) is \$310. Hence, we have

Profit = Selling Price – Cost Price

Profit = \$550 – \$310

Profit = \$240

Therefore, Erica earned a profit of \$240 from selling the shirt.

( b ) Sonny sold his computer for \$750, but he bought it for \$970. Calculate his loss.

Solution: 

The selling price is \$750 while the cost price is \$970. The selling price is lower than the cost price. We will use the formula Loss =  Cost Price – Selling Price. Hence, we have,

Loss=Cost Price-Selling Price

Loss=\$970-\$750

Loss=\$220

Therefore, Sonny sold his computer at a loss of \$220.

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