Differentiate between price, value and cost

FinanceFinance ManagementBanking & Finance

Before going for difference, let us understand the meaning of price, value and cost in simple words

Price is what you pay

Cost is what you expend

Value is what you get

There is confusion between words price, cost and value. Many people think all the threewords are more or less same but there is some difference between them. Before going for differences lets we try to understand the overview of these three words

Price

In commercial terms, price is the amount charged by the seller from the buyer in exchange for any product/service. Price includes both cost and profit. When commercial transaction is good then it is called price, when subject matter is service, then it can be

  • Supply of professional service then it is called FEES.
  • In case of insurance then it is called PREMIUM.
  • Used in case of place/machinery then it is called RENT.
  • In case of transportation then it is called FARE.
  • For work done (organization) then it is called SALARY.

Sometimes price generates revenue and sometimes price adds to cost of production. Price is also considered as the amount given in return of goods or service acquired by the buyer.

Cost

Cost is the amount spent on inputs with the aim of producing product/supplying services. Inputs can be land, capital, material, capital etc. in other words or simply words, cost in the financial worth of sacrifice made to get goods/services. Benefits obtained can be present or in future. Elements of costs are material, overheads and labor. Costs are divided into

  • Fixed cost − remains same irrespective of units produced (rent insurance, deprecation etc.)

  • Variable cost − not same or varies with units produced (labor, raw material etc.)

Value

It is a benefit derived from product/service by customers. Value is decided on the basis of benefits received in terms of features, specifications, etc. in the marketplace. Features include functional characteristics, technical support, customer support etc.

Characteristics

  • Nature is immeasurable.
  • Value Varies from time to time.
  • Value depends on supply of product and demand.
  • Value differs from place to place.

Differences

The major differences between price, value and cost are as follows −

PriceValueCost
Amount paid for product/service.Amount spent on producing/maintaining a product.Utility of a good/service.
Ascertained from the consumer's view.Ascertained from the producer's view.Ascertained from the user's view.
Estimated through policy.Estimated through fact.Estimated through opinion.
Increase/decrease in product price depends on market variations.Rise/fall of cost depends on market variations.Value remains constant.
It is calculated in terms of money.It is calculated in terms of monetary terms.It is calculated in terms of money.
raja
Published on 17-Jul-2021 16:42:31
Advertisements