What makes up the price

Price is everything that a person deals with. Be it a product, service or more abstract concepts: life, happiness, peace, etc. In economic terms, price is a monetary expression of the value of a product. But what does it consist of?

Essence of pricing

The main component in pricing is cost and demand. In economics, cost of production is the cost of producing and selling products in cash. Cost is divided into actual and planned.

The planned cost includes the necessary costs at the level of technology and organization of production. This is the use of equipment, the consumption of materials, the use of energy, labor.

Actual cost includes costs related to the operation of the product, the organization of work and the management of the production process. Other costs are also included in the price determination: taxes, loan payments, training costs, business trips, rent, deductions to funds, depreciation of intangible assets, insurance payments.

In addition to production costs, the component of the final price is also affected by the non-production, commercial factor. These types of costs determine the wholesale price of goods. On its basis, the selling price is formed taking into account value added tax (VAT) and excise tax (on excisable goods).

The retail price is the final selling price directly to the consumer, taking into account margins, including the costs of trade enterprises and VAT of trade services.