commercial-profitability-calculation

commercial profitability calculation | 9 Exercises

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Application: Sirocco Clothing

States :

Sirocco Vêtements is a chain of ready-to-wear stores that is enjoying a high level of traffic thanks to its trendy collections. The latest collection generated an annual demand of 10 pieces for a flagship model. The unit purchase price excluding VAT of this model is €000 and the selling price excluding VAT is €50. The ordering cost is €80, and the storage cost per unit per year is €100. You are responsible for analyzing the profitability of this product as well as optimizing inventory management.

Work to do :

  1. Calculate the unit margin as well as the overall margin for this collection.
  2. Determine the margin rate for the flagship model.
  3. Rate the markup rate for this collection.
  4. What is the QEC to optimize inventory management of the flagship model?
  5. Develop a pricing strategy reflection based on the results obtained.

Proposed correction:

  1. The unit margin is calculated as follows: PV HT – PA HT = €80 – €50 = €30.

    The overall margin is obtained by multiplying the unit margin by the quantity sold: €30 x 10 = €000. The unit margin of €300 and the overall margin of €000 indicate good profitability.

  2. The margin rate is calculated by: ((PV HT – PA HT) ÷ PA HT) x 100.

    Substituting, ((€80 – €50) ÷ €50) x 100 = 60%. The margin rate of 60% demonstrates strong profitability.

  3. The markup rate is determined by the formula: ((PV HT – PA HT) ÷ PV HT) x 100.

Replacing, ((€80 – €50) ÷ €80) x 100 = 37,5%. The markup rate demonstrates a good valuation compared to the sale price.

  1. To determine the QEC, we use the formula: QEC = ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost).

    Substituting, QEC = ?((2 x 10 x 000) ÷ 100) = ?5 = 400 units. The QEC of 000 units minimizes total costs.

  2. By analyzing the results, Sirocco Vêtements could potentially increase the selling price excluding tax to further improve the unit and overall margin, while ensuring not to harm customer demand.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: BioVerte Gourmandises

States :

BioVerte Gourmandises is a company specializing in organic and gourmet food products. It markets a flagship product, an organic raspberry jam. The purchase price excluding tax is €3 per jar, while the sale price excluding tax is €5. The company plans to sell 15 jars this year. The ordering cost is €000, and the storage cost is €50 per jar per year. Your mission is to recalculate the margins, rates and optimize the supply for the jam.

Work to do :

  1. What is the unit margin and overall margin for this product?
  2. Calculate the margin rate for organic raspberry jam.
  3. Determine the markup rate.
  4. What is the QEC for the product to reduce costs?
  5. Analyze margins and suggest how BioVerte could improve its financial performance.

Proposed correction:

  1. The unit margin is calculated by: PV HT – PA HT = €5 – €3 = €2.

    The overall margin is the product of the unit margin by the quantity sold: €2 x 15 = €000. The unit margin of €30 and the overall margin of €000 demonstrate good profitability of the product.

  2. The margin rate is determined by: ((PV HT – PA HT) ÷ PA HT) x 100.

    Substituting, ((€5 – €3) ÷ €3) x 100 = 66,67%. A high margin rate of 66,67% is remarkable and indicates a good return on purchase cost.

  3. The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.

Substituting, ((€5 – €3) ÷ €5) x 100 = 40%. The markup rate indicates that 40% of the sale price is profit.

  1. The QEC is calculated as follows: QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    By replacing, QEC = ?((2 x 15 x 000) ÷ 50) = ?(0,50) = 1 units. A QEC of 500 pots effectively optimizes inventory management.

  2. Given current margins, BioVerte Gourmandises could consider repositioning the selling price to increase profitability, or slightly reduce purchasing costs through negotiations to further increase its margin.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: ZenTech Solutions

States :

ZenTech Solutions, a company specializing in management software, wants to launch a new software. The production cost per license is €100, and the selling price is set at €200. Management estimates a sales figure of 5 licenses for the first year. Marketing and distribution costs are €000. ZenTech would like to evaluate the profitability of the product and adjust their strategy if necessary.

Work to do :

  1. Calculate the unit margin and the overall margin on the software.
  2. What are the margin rate and markup rate for the product?
  3. ZenTech Solutions plans to increase the selling price by 20%. What would be the new markup rate?
  4. With such a price change, how many licenses will need to be sold for an overall margin target of €600?
  5. Evaluate the strategic implications of these findings to better position ZenTech Solutions in the market.

Proposed correction:

  1. The unit margin is calculated as: PV HT – PA HT = €200 – €100 = €100.

    The overall margin is obtained by: €100 x €5 = €000. An overall margin of €500 reflects a good profit generation capacity.

  2. The margin rate is: ((PV HT – PA HT) ÷ PA HT) x 100.

    Substituting, ((€200 – €100) ÷ €100) x 100 = 100%. A margin rate of 100% shows very good profitability.

    The markup rate is: ((PV HT – PA HT) ÷ PV HT) x 100.

    Substituting, ((€200 – €100) ÷ €200) x 100 = 50%. This means that 50% of the sale price is profit.

  3. The new selling price after a 20% increase will be: €200 + (€200 x 0,20) = €240.

The new markup rate is: ((€240 – €100) ÷ €240) x 100 = 58,33%. An increase in the markup rate to 58,33% thanks to the price increase.

  1. To achieve an overall margin of €600, using the adjusted unit margin:

    €140 unit margin (new PV excluding VAT – PA excluding VAT) will be: €600 ÷ €000 = 140 licenses to sell.

    Thus, ZenTech will have to sell 4 licenses.

  2. These results indicate that increasing the price can significantly improve profitability without requiring the sale of more licenses. ZenTech Solutions could focus more on value-added sales.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100

Application: Naturomix Lighting

States :

Naturomix Lighting produces eco-friendly lighting fixtures. A popular model, “Soleil LED”, has a production cost of €15 per unit with a sales price of €30. Sales forecasts are 12 units per year. The ordering cost is €000 per order and the storage cost is €150 per unit per year. Naturomix wants to optimize its margins and inventory management.

Work to do :

  1. Determine the unit margin and the overall margin for the “Soleil LED” model.
  2. Calculate the margin rate and markup rate for this model.
  3. What increase in the pre-tax price on the “Soleil LED” model would allow us to achieve a markup rate of 60%?
  4. What is the QEC for the model to maximize storage efficiency?
  5. Discuss the implications for Naturomix Lighting using the data obtained.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €30 – €15 = €15.

    Overall margin: €15 x €12 = €000. Good performance of the overall margin would strengthen the strategy.

  2. Margin rate: ((€30 – €15) ÷ €15) x 100 = 100%.

    Markup rate: ((€30 – €15) ÷ €30) x 100 = 50%. These rates indicate excellent profitability.

  3. To achieve a 60% markup rate, we adjust:

(PV excluding VAT – €15) ÷ PV excluding VAT = 0,60.

Suppose PV HT = X, then (X – 15) ÷ X = 0,60.

0,60X = X – 15

15 = X – 0,60X

0,40X = 15

X = 15 ÷ 0,40 = €37,50.

The new selling price to reach 60% margin would be €37,50 excluding VAT.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    Substituting, QEC = ?((2 x 12 x 000) ÷ 150) = ?0,75 = 4 units. The optimal QEC allows for aligning stocks and flows.

  2. Naturomix could clearly benefit from a price increase to improve its margins without reducing its volumes sold and thus optimize its financial stability.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: AeroWind Turbines

States :

AeroWind Turbines, a company specializing in renewable energy, offers various wind turbines. The "Zephyr" model costs €1 in production and is sold for €500 per unit. It plans to sell 3 units this year. The order preparation cost is €000, and the storage cost per turbine is €300 per year. AeroWind wants to analyze its current profitability and plan the necessary adjustments.

Work to do :

  1. Calculate the unit margin and the overall margin of the “Zephyr” model.
  2. Determine the margin rate as well as the markup rate for the “Zephyr” model.
  3. AeroWind is considering a 10% price reduction to increase sales. What will the new margin rate be?
  4. What QEC allows to minimize storage costs for the production of “Zephyr”?
  5. Provide an analysis on the challenges and opportunities for AeroWind Turbines if the price is reduced.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €3 – €000 = €1.

    Overall margin: €1 x 500 = €300. This overall margin illustrates a solid financial performance for the company.

  2. Margin rate: ((€3 – €000) ÷ €1) x 500 = 1%.

    Markup rate: ((€3 – €000) ÷ €1) x 500 = 3%. These rates show the commercial attractiveness and viability of the product offering.

  3. New PV excluding tax after a 10% reduction: €3 x (000 – 1) = €0,10.

New margin rate: ((€2 – €700) ÷ €1) x 500 = 1%.

After reduction, the margin rate is still good at 80%.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    By replacing, QEC = ?((2 x 300 x 500) ÷ 50) = ?6000 = 77 units. The QEC of 77 units optimizes logistics and inventory management.

  2. While reducing price could boost sales, it will also require optimizing production costs to maintain profitability. Volume opportunities are emerging for AeroWind, which warrants a strategic review.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: GreenFuel Distributors

States :

GreenFuel Distributors offers various biodegradable fuel dispensing equipment. The flagship equipment "EcoPump" is produced for €500 per unit and sold for €1. The company expects to sell 000 units this year. Ordering costs are €800, while storage per product costs €200 per year. GreenFuel is looking for ways to improve its performance and limit costs.

Work to do :

  1. Calculate the unit margin and the overall margin of the product “EcoPump”.
  2. Evaluate the margin rate as well as the brand rate of the product.
  3. GreenFuel is considering increasing the price by 15%. Calculate the impact on the margin rate.
  4. What QEC allows to rationalize costs for “EcoPump”?
  5. Analyze how GreenFuel could use these calculations to adjust its offer.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €1 – €000 = €500.

    Overall margin: €500 x €800 = €400. This demonstrates an effective sales strategy.

  2. Margin rate: ((€1 – €000) ÷ €500) x 500 = 100%.

    Markup rate: ((€1 – €000) ÷ €500) x 1 = 000%. These figures highlight excellent economic competitiveness.

  3. New PV excluding tax with a 15% increase: €1 x (000 + 1) = €0,15.

New margin rate: ((€1 – €150) ÷ €500) x 500 = 100%.

Increasing the price significantly improves the margin once increased.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    By replacing, QEC = ?((2 x 800 x 200) ÷ 20) = ?16 = 000 units. Proper management of QEC optimizes business operations.

  2. By increasing the price of the equipment, GreenFuel would have greater financial capacity to invest in research and innovation, while balancing the need to be competitive in the market.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: SweetBites Confectionery

States :

SweetBites Confiseries excels in the production of organic sweets. A pack of “Caramel Doux” costs €2 to produce and sells for €4. The company plans to produce and sell 25 packs this year. The ordering fee per batch is €000, while storage costs €30 per pack per year. SweetBites wants to improve the yield and develop their product optimally.

Work to do :

  1. What is the unit margin and overall margin for the product “Caramel Doux”?
  2. Calculate the margin rate as well as the markup rate.
  3. Visualize the effects on the margin rate if the production cost increases by 10% without adjusting the sales price.
  4. Identify the optimal QEC for this candy line.
  5. Offer an insightful analysis on the future of “Sweet Caramel” for SweetBites.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €4 – €2 = €2.

    Overall margin: €2 x €25 = €000. The data reveals a good commitment to profitability.

  2. Margin rate: ((€4 – €2) ÷ €2) x 100 = 100%.

    Markup rate: ((€4 – €2) ÷ €4) x 100 = 50%. The figures are eloquent and promising for the future.

  3. With a 10% increase in production cost, the new cost is €2 + (€2 x 0,10) = €2,20.

New margin rate: ((€4 – €2,20) ÷ €2,20) x 100 = 81,82%. 

Cette variation impose de reconsidérer les stratégies de coûts pour maintenir des marges favorables.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    Substituting, QEC = ?((2 x 25 x 000) ÷ 30) = ?0,20 = 7 packets. Optimal management is based on this QEC model.

  2. To maintain performance and anticipate cost increases, SweetBites should explore cost reductions, or reconsider selling prices to support long-term profit margin.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: SolarTech Innovations

States :

SolarTech Innovations is using its best resources to produce the “Helios” solar panels. The manufacturing cost of a panel is €150, and it is sold at €300. The company plans to sell 1 units within the year. Ordering costs are €500 per batch and the annual storage cost is €100 per panel. SolarTech is looking to leverage its strengths and make its initial investments profitable.

Work to do :

  1. Estimate the unit margin and overall margin for “Helios” panels.
  2. Determine the margin rate and the markup rate.
  3. Discuss the impact of a 20% discount on the product's selling price on the margin.
  4. Evaluate QEC for optimal inventory management.
  5. Provide feedback and recommendations for SolarTech based on the results.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €300 – €150 = €150.

    Overall margin: €150 x €1 = €500. These figures represent solid benchmarks for the company.

  2. Margin rate: ((€300 – €150) ÷ €150) x 100 = 100%.

    Markup rate: ((€300 – €150) ÷ €300) x 100 = 50%. This demonstrates solid financial foundations for SolarTech.

  3. With a 20% discount, the new selling price becomes: €300 x (1 – 0,20) = €240.

New margin rate: ((€240 – €150) ÷ €150) x 100 = 60%. A margin reduction to 60% provides an incentive to adjust costs.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    Substituting, QEC = ?((2 x 1 x 500) ÷ 100) = ?10 = 30 units. The use of QEC is crucial for logistics competitiveness.

  2. SolarTech must weigh the benefits of a lower-priced volume strategy against shrinking margins in a growing market, supporting continued innovation.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

Application: UrbanEscape Bags

States :

UrbanEscape Bags focuses on robust and practical fashion accessories. A “CityWalker” backpack is produced for €35 and sells for €75. The company expects to make 5 sales this year. The order processing cost is €000 per order and the storage cost is €25 per bag per year. UrbanEscape wants to refine its margins and logistics processes.

Work to do :

  1. Calculate the unit margin and overall margin for “CityWalker”.
  2. Evaluate the margin rate as well as the markup rate.
  3. Estimate the margin rate if UrbanEscape decided to lower the sale price by €5.
  4. Determine QEC for efficient storage operations.
  5. Discuss future implications for UrbanEscape when the results are evaluated.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €75 – €35 = €40.

    Overall margin: €40 x €5 = €000. These results are conducive to a diversification effort.

  2. Margin rate: ((€75 – €35) ÷ €35) x 100 = 114,29%.

    Markup rate: ((€75 – €35) ÷ €75) x 100 = 53,33%. These elements support a strong position in the market.

  3. A new sale price is €75 – €5 = €70.

The adjusted margin rate: ((€70 – €35) ÷ €35) x 100 = 100%. UrbanEscape would maintain good profitability despite the price drop.

  1. QEC: ?((2 x Annual demand x Ordering cost) ÷ Storage cost).

    By replacing, QEC = ?((2 x 5 x 000) ÷ 25) = ?1 = 250 bags. This ensures operational continuity with optimized costs.

  2. A critical analysis reveals that UrbanEscape can support its development through targeted price reduction, attracting more customers while enhancing overall efficiency.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Overall margin Unit margin x quantity sold
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)

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