Calculating the cost price of a product is essential for businesses to determine their profit margin, set an appropriate selling price, and manage their inventory. In this article, we’ll explore how to calculate the cost price from the selling price and mark-up using a simple formula. This method can be helpful for entrepreneurs, retailers, and wholesalers alike.

Step 1: Understand the terms

Before we begin, let’s define the two key terms in this calculation:

– Selling Price (SP): This is the final price at which a product is sold to the customer.

– Mark-up: This refers to the percentage increase applied to the cost price in order to determine the selling price. It represents the profit margin for retailers or wholesalers.

Step 2: The formula

Now that we are familiar with these terms, let’s look at the formula that will help us calculate the cost price (CP) from the selling price and mark-up.

CP = SP / (1 + (Mark-up / 100))

Step 3: Apply the formula with an example

Let’s say you’re a retailer who has purchased a TV at a wholesale rate, then marked it up by 20% before selling it. You were able to sell this TV for $1,200. To calculate the original cost price of this TV using our formula:

CP = 1200 / (1 + (20 / 100))

CP = 1200 / (1 + 0.2)

CP = 1200 / 1.2

CP = $1000

So, in this example, the original cost price of the TV was $1,000 before applying your mark-up.

Conclusion:

Calculating cost price based on selling price and mark-up is a useful skill for any business owner to have. This allows you to have better control over your pricing strategy and profit margins. With this simple formula, you now have the tools to determine the cost price for your products and make data-driven decisions for your business.