Difference Between Price and Cost

Price vs Cost Differences

The key difference between cost and price is that cost is the amount of expenditure incurred by the business on material, labor, sales, and utilities and on other business activities, whereas, price refers to the amount that is charged by the business from its customers for providing their goods and services to the costumer and costumer has to pay such 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 day to day normal conversation, but when it comes to economics or business, each term takes on a separate meaning and must not be perplexed with one another.

What is Price?

Technically speaking, a price can be termed as the actual amount of money that 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 of money.

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What is Cost?

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

Price vs. Cost Infographics

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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 incur in producing the product of the firm.
  • The price will remain the same for all the consumers or customers. Cost is also the same for all consumers or customers. However, the Cost differs only for the firm that prepares it.
  • We estimate Price through a policy, set up for the price. Whereas, we access Cost on the actual expenditure that incurs on manufacturing that product.
  • The ups and downs that happen in the market affect both the cost and the price of any product. The only difference is that changes happening in cost is outside the scope of the company, 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. Whereas, ascertainment of the cost is from the company’s or producer’s view.
  • If you purchase a brand-new vehicle like Car, then the amount that you will pay for it to the seller for its acquisition will be its price. Whereas, the amount invested in the manufacturing of that same car is its cost. Normally, the price of any services or goods will be more than its cost, the reason being the price includes the profit marginProfit MarginProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. read 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.
Nature Every 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 (COGS), which is the total sum of the direct costs that are involved in a production. These costs can include direct materials costs, 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.
Ascertainment We 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 price, selling price, buying price or transaction price etc.It can be also be further classified as a variable cost, fixed cost 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, the two terms, as mentioned at the beginning of the article that they both have completely different meanings when applied in economics or business.

  • Cost refers to the amount of money spent on different activities to make or maintain service or product. In contrast, Price, as told earlier, implies future acquisitions of the service or product.
  • Both refer to the element of the money. In price, the use of money is to gain something. Whereas, 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 Price by adding all the production costs and the seller’s profits. In this context, a cost can be sort of a subset or component of the price. In addition to that, 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 to that, cost represents all the past expenses. 

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