Cost is typically the expense incurred for a product or service being sold by a company. The costs involved in manufacturing might include the raw materials used in making the product. The amount of cost it takes to produce a product can have a direct impact on both the price of the product and the profit earned from its sale.
Price is the amount a customer is willing to pay for a product or service. The difference between the price paid and the costs incurred is the profit. If a customer paid $10 for an item that cost $6 to produce and sell, the company earned $4 in profit.
For some companies, the total costs of making a product are listed under cost of goods sold, which is the total of the direct costs involved in production. These costs might include the direct materials, such as raw materials, and direct labor for the manufacturing plant.
On the other hand, a retail store might include a portion of the building's operating expenses and the sales associate's salary in their costs. For the items sold through the company's website rather than the physical store, the expenses of designing and operating the website might be included in the costs.
Of course, every company must determine the price customers will be willing to pay for their product or service, while also being mindful of the cost of bringing that product or service to market.
For more on costs, please read "How Do Operating Expenses and Cost of Goods Sold Differ?"
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