Gross price
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Gross price is the total amount of money paid for a product or service, including any taxes and additional fees.
- Price of item: The price of the item is the cost of the product or service before the addition of any taxes or fees.
- Tax: Tax is an additional cost that is added to the price of a product or service. It is usually a percentage of the item's price and can differ depending on the location of the purchase.
- Fees: Fees are additional costs that may be added to the price of a product or service. These costs can include delivery fees, processing fees, or any other fee associated with the purchase.
The gross price includes indirect taxes, such as:
- VAT tax on goods and services
- Excise tax
Calculating the gross price
Gross price = net price + net price * tax rate
- For example: Gross price = PLN 100 + PLN 100 * PLN 0.23 = PLN 123
- With the given gross price, you can also calculate the net price of the product (knowing the tax rate):
- Net price = gross price: 1 + tax rate
- For example: Net price = 1845 PLN: 1 + 0.23 = 1845 PLN: 1.23 = 1500 PLN
Other example:
- Gross price = Price of item + Tax + Fees
- Gross price = $100 + $10 (10% Tax) + $5 (Fees)
- Gross price = $115
Formula of Gross price
Gross Price = Price of item + Tax + Fees
When to use Gross price
Gross price should be used when calculating the total cost of a product or service, including any taxes or fees. It is also important to remember that the gross price will be different in different locations due to differences in taxation.
In summary, gross price is the total amount of money paid for a product or service, including any taxes and additional fees. It is composed of the item's price, the tax, and any additional fees associated with the purchase. It should be used when calculating the total cost of a product or service, including any taxes or fees.
Law basics
The price is the value expressed in monetary units that the buyer is obliged to pay to the entrepreneur for the good or service, including the value added tax and excise tax, if based on separate regulations, the sale of goods (services) is subject to a tax on goods and services and excise duty. This definition of the price means that we are talking about the gross price here. This means that the seller is obliged to indicate gross prices of the goods or services sold.
VAT rates
The tax rate is a factor that allows you to calculate the amount of tax. Tax rates take the form of:
- amount - expressed by the number of monetary units, for example US$1 from 1 meter of the surface of the commercial premises
- relative - expressed as a basis for taxation, the following forms are distinguished:
- percentage - e.g. 5% of the tax base
- fractional - e.g. 1/3 of the tax base
- multiples - three times the tax base
VAT rate changes
Changes in VAT rates or the imposition of VAT on a product previously exempted from taxation pose a decision-making problem for an undertaking when determining a pricing strategy for a given good or service. The selling company faces a dilemma of who is to suffer the consequences of the gross price increase (by tax increase) - the company or the customer. There are two possibilities:
Maintaining the price of the product, i.e. bearing the additional cost by the selling company Raising the price of the product by transferring the tax to the customer in order to avoid a drop in profit The optimal solution, assuming a competitive market and flexible demand, is to reduce the product's unit margin and pay the tax at its expense. The gross price (the price paid by the customer) should remain unchanged after changing the tax rate. Passing VAT on buyers leads to the loss of some customers and a higher burden on other buyers. This is an inefficient solution for the enterprise.
The way of presenting the price
Information about the price of a commodity in value (value) not including tax is unreliable, false and incomplete, because it is the entrepreneur's obligation to mark the prices of goods in accordance with applicable law, and the consumer has the right to know the price of the product, and not to calculate it alone, regardless of whether the price of the product is provided with general information - net price, price + VAT, etc. The entrepreneur is obliged to clearly and reliably present information about the price of the good or service. It is not only about the content of information, but also about the way it is presented. All circumstances of placing the product on the market should be taken into account so that the consumer is not misled.
Advantages of Gross price
- Easier to calculate: Calculating the gross price of a product or service is much simpler than calculating the net price, as it does not involve any additional calculations to account for taxes and fees.
- More transparent: Gross pricing makes it easier for customers to understand how much they will be paying for a product or service, as the total cost is displayed up front.
Limitations of Gross price
Gross price does not take into account any discounts or promotions that may have been applied to the purchase. This can lead to confusion when comparing prices of products or services, as the discounts may not be accounted for in the gross price. Additionally, gross price can be difficult to calculate when the taxes and fees vary by location.
- Discounts: Discounts are reductions in the price of a product or service. They can be offered as a percentage off of the item's original price or as a fixed amount.
- Net price: Net price is the total amount paid for a product or service after any discounts or taxes are applied. It is the final amount that is actually paid by the customer.
Gross price is a concept related to the cost of a product or service, and includes any taxes or additional fees associated with the purchase. It can be calculated by adding together the item's price, the tax, and any additional fees. Other related approaches include discounts and net price.
References
- Corrocher, N., & Guerzoni, M. (2009). Product variety and price strategy in the ski manufacturing industry. Journal of Evolutionary Economics, 19(4), 471-486.
- Biyalogorsky, E., & Gerstner, E. (2004). Contingent pricing to reduce price risks. Marketing Science, 23(1), 146-155.
- Beracha, E., & Seiler, M. J. (2014). The effect of listing price strategy on transaction selling prices. The Journal of Real Estate Finance and Economics, 49(2), 237-255.
