Replacement cost
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is replacement cost?
Replacement cost is what it would cost a distributor to buy an item again today, as opposed to what it paid for the stock already on its shelf. Distributors that price from replacement cost keep prices in step with supplier costs when those costs rise.
How it works
An ERP tracks several costs for each item, such as average cost (the weighted average paid for the stock on hand), last cost and replacement cost. Which one a margin report uses can change the margin it shows.
Replacement cost example
Copper wire on the shelf cost $1.00 a foot, but the supplier now charges $1.20. Quoting off $1.20 means the price covers what it will cost to restock the wire.
Related terms
- Landed costLanded cost is the total cost of getting a product onto the shelf: its purchase price plus inbound freight, duties and tariffs, insurance and handling.
- Cost-plus pricingCost-plus pricing sets a customer’s price as the distributor’s cost plus a fixed percentage or amount, such as cost plus 12%.
- Cost of goods sold (COGS)Cost of goods sold (COGS) is the cost of the products a company sold during a period.
- Price protectionPrice protection is a supplier’s commitment that shields a distributor from a price change.
