In business, you will often come across terms like Unit Price, Retail Price, and Extended Price.
Unit Price and Retail Price are more commonly known. But what is Extended Price?
The Extended Price of an item is the price paid for the item itself, plus all acquisition costs.
When an item is purchased, there could be additional costs associated with acquiring it. There is, of course, the cost of the item itself. But there could be costs like shipping, customs duties, levies, delivery costs, shipping insurance, legal fees, etc.
Basically, these are costs you need to incur in order to get possession of the item you have purchased.
Adding all these ancillary acquisition costs to the price of the item itself gives us its Extended Price.
Extended Pricing (or Extended Costing) is used in accounting to calculate the total true costs incurred in the acquisition of an item.
When purchasing a product or an item, you should take care to understand not just what the product’s Retail Price is but also its Extended Price.
What is Extended Price?
We can define Extended Price using this formula:
Extended Price = (Retail Price of Item + All Acquisition charges per item) X No. of Items
Let’s take a concrete example.
Let’s say you run a small electronics company and you place an order for 50 special-purpose circuit boards.
- Each circuit board costs $36. This is the Retail Price.
- Shipping costs are $50.
- Insurance is another $30.
So total acquisition costs across the entire order are: $50 + $30 = $80.
Now, the order is for 50 circuit boards.
So, the acquisition cost per circuit board comes to: $80 / 50 = $1.6
Therefore,
- the Extended Price per circuit board = $36 + $1.6 = $37.6
- The Extended Price for the entire order = $37.6 X 50 = $1880
Note that you can consider the Extended Price on a per-item basis or for the entire order, whichever works best for you to make your purchase decision.
Benefits of Extended Price
The Extended Price shows you the true cost of the acquisition of a product.
Just like Unit Price, it helps you compare prices of similar products sourced from different vendors incurring different acquisition costs.
Let’s say that you are purchasing an item and you have two potential suppliers for it. The item costs the same with both suppliers – say $100.
But Supplier 1 offers free shipping and delivery. Supplier 2 charges $10 for shipping.
The Extended Price of the item from Supplier 1 is $100.
The Extended Price of the item from Suppler 2 is $100. + $10 (shipping) = $110
So Extended Price with Supplier 2 is greater than the Extended Price with Supplier 1.
This was a fairly simple example of Extended Price. But Extended Prices can be really helpful in complex purchasing decisions with many moving parts where many different acquisition costs come into play.
They can help compare total costs of acquisition from different vendors to decide which vendor is offering the best return on investment.
Summary
- The Extended Price is the price of a product or item including all acquisition costs. It shows us the true cost of acquiring an item.
- Acquisition Costs can include shipping costs, customs, delivery costs, etc.
- Extended Prices (or Extended Costs once they are incurred) are used in accounting to determine the true cost of an item.
- Extended Prices are also very helpful in comparing the same or similar products from different vendors who have a different set of acquisition costs, therefore different Extended Prices.
