Cost vs Price Quiz and Flashcards: Master the Difference

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Questions and Answers

Define cost in the context of a product.

Cost is the total amount of money invested in a product.

Explain the concept of price related to a product.

Price is the amount of money asked/received in exchange for a product.

What is the relationship between price and cost in terms of profit or loss?

The difference between the price and the cost of a product is profit or loss on that product.

How is profit calculated for a firm?

Revenue minus costs equals profit or loss. Signup and view all the answers

What constitutes revenue for a firm?

Revenue is the total of all receipts from the sale of the firm's products during a stated time period. Signup and view all the answers

What are the reasons for the need for COSTING in clothing?

To classify costs, control materials, labor, and overhead costs, assist in decision-making, create expansion strategies, ensure profitability, and help manage seasonal variations. Signup and view all the answers

How does apparel costing help management?

It assists in decision-making, creating expansion strategies, ensuring profitability, and managing seasonal variations in volume and costs. Signup and view all the answers

What are the benefits of using costing in clothing businesses?

Classification and sub-divisions of costs, control of materials, labor, and overhead costs, assisting in decision-making, creating expansion strategies, ensuring profitability, and managing seasonal variations. Signup and view all the answers

How does costing in clothing assist in managing seasonal variations?

It helps the management take suitable steps to meet seasonal variations in volume and costs. Signup and view all the answers

What role does costing play in ensuring optimum profitability?

Costing helps ensure optimum profitability by controlling costs and assisting in decision-making. Signup and view all the answers

How does costing in clothing contribute to business policies?

Costing assists in setting business policies by providing insights into costs, materials, labor, and overhead. Signup and view all the answers

What is costing in the apparel industry?

The process of estimating and determining the total cost of producing a garment, including materials, labor, and general expenses. Signup and view all the answers

How do managers use costing in the fashion industry?

Managers use costing to determine producibility of a design, profit potential, and whether a design should be added to the production line. Signup and view all the answers

What does product costs accumulate from in a company?

Product costs accumulate from all functional divisions of a company, including Research & Development, Sample & Design, Marketing, Production, Finance, and Purchasing. Signup and view all the answers

Define pricing in the apparel industry.

Pricing is the process of determining the exchange value of goods for sale. Signup and view all the answers

What is the purpose of determining producibility of a design in costing?

To assess if a design can be produced within an established price range. Signup and view all the answers

How does costing help in planning line budgets?

Specific cost information from costing is used to plan line budgets. Signup and view all the answers

Study Notes

Definitions

Cost refers to the total expenditure incurred by a company in the production of a product, including materials, labor, and overhead expenses.
Price is the amount a customer pays for a product, reflecting its market value and perceived worth.

Price and Cost Relationship

Price must exceed cost for a company to make a profit; if price is lower than cost, a loss occurs.
Profit is calculated as the difference between total revenue and total costs.

Revenue

Revenue for a firm is generated from the sale of products or services and is a key indicator of business performance.

Importance of Costing in Clothing

Costing is essential for determining feasible pricing and helps establish budgetary controls.
It aids in analyzing production efficiency and identifying cost-saving opportunities.

Benefits of Costing in Clothing Businesses

Supports management in decision-making by providing a clear view of expenses and profitability.
Enhances pricing strategies by ensuring prices reflect costs and market conditions.

Managing Seasonal Variations

Costing assists in forecasting and managing inventory levels during peak and off-peak seasons.
Enables better financial planning to accommodate demand fluctuations.

Optimum Profitability

Costing plays a vital role in determining the most profitable product mix and maximizing margins.
Identifying high-cost areas helps firms streamline processes and reduce waste.

Contribution to Business Policies

Effective costing informs strategic decisions and shapes overall business strategies.
Provides insights into competitive pricing, production, and resource allocation.

Overview of Costing in the Apparel Industry

Costing involves estimating and analyzing all costs associated with apparel production to maintain competitiveness.
Managers utilize costing to track expenses and set appropriate price points based on production costs.

Product Cost Accumulation

Product costs accumulate from raw materials, labor, manufacturing overhead, and any additional costs directly related to production.

Pricing in the Apparel Industry

Pricing is influenced by production costs, market demand, and competitor pricing, aiming to optimize sales and profit margins.

Producibility of Design

Determining producibility ensures designs can be feasibly manufactured within budget constraints, reducing financial risks.

Line Budget Planning

Costing aids in planning line budgets by forecasting expected production costs, thereby allowing better resource management and allocation.

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Description

Explore the fundamental differences between cost and price in the context of understanding profit in the fashion industry. Learn how rapid changes in fashion, pricing strategies, sourcing options, and competition impact the relationship between cost and price.