What is Cost Price?

S1-SA2-0849

Grade Level:

Class 5

Finance, Economics, Maths, Business

Definition

What is it?

Cost Price is the amount of money a shopkeeper or a business pays to buy a product. It's the original price at which they get an item before selling it to customers.

Simple Example

Quick Example

Imagine your father buys a new mobile phone for Rs. 15,000 from a wholesaler. This Rs. 15,000 is the Cost Price for your father. He will then sell it to a customer for a higher price.

Worked Example

Step-by-Step

PROBLEM: A bookseller buys a box of 10 storybooks for Rs. 500. What is the Cost Price of one storybook?

STEP 1: Identify the total cost. The total cost for 10 books is Rs. 500.
---STEP 2: Identify the number of items. There are 10 storybooks.
---STEP 3: To find the Cost Price of one book, divide the total cost by the number of books.
---STEP 4: Calculation: Cost Price per book = Total Cost / Number of books
---STEP 5: Cost Price per book = Rs. 500 / 10
---STEP 6: Cost Price per book = Rs. 50

ANSWER: The Cost Price of one storybook is Rs. 50.

Why It Matters

Understanding Cost Price is super important for anyone doing business, big or small. Shopkeepers, entrepreneurs, and even big companies like Reliance or Tata use it to decide how much to sell their products for and make a profit. It's a basic concept in Finance and Economics.

Common Mistakes

MISTAKE: Confusing Cost Price with Selling Price. | CORRECTION: Cost Price is what you pay to buy something; Selling Price is what you charge customers to sell it.

MISTAKE: Forgetting to include all expenses in the Cost Price. | CORRECTION: Cost Price should include not just the purchase price, but also any transport or other charges to get the item ready for sale.

MISTAKE: Thinking Cost Price is always fixed. | CORRECTION: Cost Price can change based on where you buy from, how much you buy, and special offers.

Practice Questions

Try It Yourself

QUESTION: A vegetable vendor buys 5 kg of potatoes for Rs. 100. What is the Cost Price per kg? | ANSWER: Rs. 20

QUESTION: A toy shop owner buys 12 identical toy cars for a total of Rs. 720. What is the Cost Price of one toy car? | ANSWER: Rs. 60

QUESTION: Meena runs a small online jewellery business. She buys raw materials worth Rs. 800 and spends Rs. 150 on making a necklace. What is her total Cost Price for that necklace? | ANSWER: Rs. 950

MCQ

Quick Quiz

What is the Cost Price of an item?

The price at which a customer buys it.

The price a shopkeeper pays to buy the item.

The profit made on selling an item.

The discount offered on an item.

The Correct Answer Is:

Cost Price is the amount a shopkeeper or business pays to acquire a product. Option A is the Selling Price, and Options C and D are related to profit and discounts, not the initial buying cost.

Real World Connection

In the Real World

Every shop, from your local kirana store to big supermarkets like D-Mart or Reliance Fresh, constantly calculates Cost Price. When a shop owner buys a packet of biscuits from a distributor, the amount they pay is the Cost Price. They then add a little extra to cover their expenses and make a profit when they sell it to you.

Key Vocabulary

Key Terms

SELLING PRICE: The price at which an item is sold to a customer. | PROFIT: The money gained when the Selling Price is more than the Cost Price. | LOSS: The money lost when the Selling Price is less than the Cost Price. | WHOLESALER: A person or company that sells goods in large quantities to retailers.

What's Next

What to Learn Next

Great job learning about Cost Price! Next, you should learn about 'Selling Price'. Understanding Selling Price, along with Cost Price, will help you calculate if a business is making a 'Profit' or a 'Loss', which is super exciting!