Define Factory Price:

"Factory price, also known as the manufacturer's price or wholesale price, refers to the cost at which goods are sold by a manufacturer to distributors, wholesalers, or retailers."

Explain Factory Price:

Introduction

Factory price, also known as the manufacturer's price or wholesale price, refers to the cost at which goods are sold by a manufacturer to distributors, wholesalers, or retailers. It represents the price charged by the manufacturer before any additional markups or profit margins are added by intermediaries in the supply chain.

What is Factory price? 

When a manufacturer produces goods, the factory price is the basic cost of production, including direct expenses such as raw materials, labor, production overhead, and manufacturing expenses. It does not include any distribution costs, marketing expenses, or retail markups.

Once the goods are manufactured, they are typically sold in bulk quantities to wholesalers or distributors at the factory price. These wholesalers or distributors, in turn, sell the products to retailers or end customers, adding their own profit margins to the factory price. Eventually, the product reaches the end consumer, and the retail price, which includes all the added costs and markups, is what the consumer pays.

The factory price is an essential component in the supply chain, as it serves as the starting point for pricing decisions and profit calculations for all the parties involved in the distribution and sale of the goods.

Example

For example, if a manufacturer produces a smartphone and the factory price of each unit is $200, they would sell a bulk quantity of smartphones to a distributor or retailer at this price. The distributor or retailer may then sell the smartphones to customers at a higher retail price, say $400, thus making a profit of $200 (retail price - factory price) per unit.

Conclusion

It's important to note that the factory price can vary based on factors such as the production volume, economies of scale, manufacturing efficiency, and negotiation between the manufacturer and the buyer. Also, different manufacturers may have different factory prices for similar products based on their cost structures and strategies.