California Civil Jury Instructions (CACI)

3303. Definition of "Cost"

The term "cost" means all costs of doing business, including fixed costs that do not tend to change with sales, such as heat and light, as well as variable costs that do tend to change with sales, such as sales commissions.

Costs of doing business may include the following:

1. Labor, including salaries of executives and officers;

2. Rent and utilities;

3. Interest on loans;

4. Depreciation;

5. Selling cost;

6. Maintenance of equipment;

7. Delivery costs;

8. Credit losses;

9. Advertising costs;

10. Licenses, taxes; [and]

11. Insurance; [and]

12. [Insert other cost(s).]

[The term "cost" as applied to warranty service agreements also includes the cost of parts and delivery of the parts.]

[The term "cost" as applied to distribution also includes either the invoice cost or replacement cost of the product, whichever is lower.]

[The term "cost" as applied to services also includes the prevailing wage at the time and place these services were provided if [name of defendant] was paying less than the prevailing wage.]

Any discounts given for cash payments may not be used to lower costs.

Directions for Use

The bracketed paragraphs should be inserted as appropriate to the facts.

In cases involving the sale of cellular telephones and cigarettes, Business and Professions Code sections 17026.1 and 17026.5 measure "cost" somewhat differently.

Sources and Authority

Business and Professions Code section 17026 provides: "Cost" as applied to production includes the cost of raw materials, labor and all overhead expenses of the producer.

"Cost" as applied to distribution means the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor, plus the cost of doing business by the distributor and vendor and in the absence of proof of cost of doing business a markup of 6 percent on such invoice or replacement cost shall be prima facie proof of such cost of doing business.

"Cost" as applied to warranty service agreements includes the cost of parts, transporting the parts, labor, and all overhead expenses of the service agency.

Discounts granted for cash payments shall not be used to reduce costs.

Business and Professions Code section 17029 provides: " 'Cost of doing business' or 'overhead expense' means all costs of doing business incurred in the conduct of the business and shall include without limitation the following items of expense: labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance and advertising."

Business and Professions Code section 17076 provides: "In any action brought under this chapter, where persons are employed or performing services for any person or in the conduct of the business wherein such person is charged with a violation of this chapter, and are so employed or performing such services without compensation or at a wage lower than that prevailing at the time and place of the service for the particular services performed, such services shall be charged as an expense of the business in which rendered and at the rate of the wage or the services rendered prevailing at the time of the service at the place where rendered."

"Determination of the defendant's cost has always been treated as an issue of fact." (Pan Asia Venture Capital Corp. v. Hearst Corp. (1999) 74 Cal.App.4th 424, 433 [88 Cal.Rptr.2d 118].)

"These statutes embody California's fully allocated cost standard, that is, a fair allocation of all fixed or variable costs associated with production of the article or product." (Pan Asia Venture Capital Corp., supra, 74 Cal.App.4th at p. 432, footnote omitted.)

"Cost is to be measured as 'the fair average cost of production over a reasonable time, rather than the cost of one item on a particular occasion.' " (Pan Asia Venture Capital Corp., supra, 74 Cal.App.4th at p. 432, fn. 6, internal citation omitted.)

"Variable costs are costs that vary with changes in output, while fixed costs are those that do not vary with changes in output." (Turnbull & Turnbull v. ARA Transportation Inc. (1990) 219 Cal.App.3d 811, 820 [268 Cal.Rptr. 856].)

"California employs a fully allocated cost standard to determine whether a sale has violated section 17043. Under sections 17026 and 17029 . . . cost means invoice cost plus the vendor's full cost of doing business or six percent." (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 275 [195 Cal.Rptr. 211], internal citations omitted.)

"We find the use of the fully allocated cost method, when viewed in conjunction with the injurious intent requirement of section 17043, is rationally related to the valid legislative purpose . . . as it assists in preventing the creation or perpetuation of monopolies." (Turnbull & Turnbull, supra, 219 Cal.App.3d at p. 822.)

"To be legally acceptable, the allocation of indirect or fixed overhead costs to a particular product or service must be reasonably related to the burden such product or service imposes on the overall cost of doing business." (Turnbull & Turnbull, supra, 219 Cal.App.3d at p. 822.)

Secondary Sources

1 Witkin, Summary of California Law (9th ed. 1987) Contracts, §§ 591- 596, pp. 534-539

1 Antitrust and Trade Regulation Law Section, State Bar of California, California Antitrust Law (2d ed. 1997), § 1.02A.4

3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts, § 40.153 (Matthew Bender)

49 California Forms of Pleading and Practice, Ch. 565, Unfair Competition (Matthew Bender)

23 California Points and Authorities, Ch. 235, Unfair Competition (Matthew Bender)

(New September 2003)