commercial cost calculation | 9 Exercises

Application: GastroSave

States :

GastroSave, an innovative company in food preservation solutions, wants to review its cost calculation for their new range of reusable storage containers. The containers are made from eco-friendly materials. Here is the data:

• Cost of raw materials per box: €3,50
• Direct labor cost per box: €1,20
• Indirect manufacturing cost per box: €0,80
• Monthly distribution costs: €500 for an assumed sales volume of 1000 boxes

Work to do :

1. Calculate the unit cost of the box.
2. Determine the unit selling price excluding tax to obtain a margin rate of 30%.
3. Estimate the total amount of distribution charges.
4. GastroSave wants to reduce the cost of raw materials by 10%. What would be the new unit cost price?
5. Analyze the strategic impact of this reduction on GastroSave's price positioning.

Proposed correction:

1. Unit cost is the sum of all costs incurred to produce a box. The formula used is: Unit cost = Raw material cost + Direct labor cost + Indirect manufacturing cost
   By replacing, we have: €3,50 + €1,20 + €0,80 = €5,50 per box.
   The unit cost of the box is €5,50.

2. To obtain a margin rate of 30%, the selling price excluding tax is calculated as follows: PV excluding tax = Cost price ÷ (1 – Margin rate).
   This gives: €5,50 ÷ (1 – 0,30) = approximately €7,86.
   The unit selling price excluding VAT should be €7,86.

3. Distribution costs will be spread across all boxes. To do this, let's calculate: Distribution cost per box = Distribution costs ÷ Sales volume.

That’s: €500 ÷ 1000 = €0,50 per box.
The total amount of distribution charges is indeed €0,50 per box, which confirms a minimal impact on the unit price.

4. Reducing the cost of raw materials by 10% results in new value:
   New cost of raw materials = €3,50 x (1 – 0,10) = €3,15.
   The new cost price becomes: €3,15 + €1,20 + €0,80 = €5,15.
   The new unit cost price would be €5,15.

5. Reducing raw material costs potentially improves GastroSave's price competitiveness. With a lower cost of production, the company could either offer more attractive prices or increase its margins, strengthening its market position.

Formulas Used:

Title	Formulas
Unit cost price	Raw Material Cost + Direct Labor Cost + Indirect Manufacturing Cost
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Distribution cost per box	Distribution costs ÷ Sales volume

Application: EcoFleet Motors

States :

EcoFleet Motors, an electric scooter manufacturer, wants to evaluate the cost of its latest models to adjust its business strategies. The new scooter has the following costs:

• Cost of spare parts: €800 per scooter
• Direct labor cost: €250 per scooter
• Indirect management cost: €150 per scooter
• Production overheads allocated to scooters: €7 for a production target of 500 scooters

Work to do :

1. What is the unit cost of the electric scooter?
2. Calculate the required selling price excluding tax for a markup rate of 20%.
3. What is the total overhead cost per scooter?
4. If production is to be increased to 100 scooters, how does this affect overhead costs per scooter?
5. Evaluate the impact of a 5% decrease in labor costs on EcoFleet Motors' competitiveness.

Proposed correction:

1. The total unit cost is composed as follows: Unit cost = Cost of spare parts + Cost of direct labor + Indirect management cost
   Adding the given figures: €800 + €250 + €150 = €1 per scooter.
   The unit cost of the electric scooter is therefore €1.

2. For a markup rate of 20%, use: PV excluding tax = Cost price ÷ (1 – Markup rate).
   So, €1 ÷ (200 – 1) = €0,20.
   The required selling price excluding tax is €1.

3. The total overhead cost is spread over the total scooters:

Overhead per scooter = Production overhead ÷ Number of scooters produced
Which gives €7 ÷ 500 = €50 per scooter.
The total cost of overheads per scooter is €150.

4. By increasing production to 100 scooters, calculate again:
   Overhead costs per scooter = €7 ÷ 500 = €100 per scooter.
   The increase in production reduces overheads per scooter to €75, improving profitability.

5. A 5% decrease in labor costs reduces production costs. New cost: €250 x (1 – 0,05) = €237,50.
   The new unit cost price: €800 + €237,50 + €150 = €1.
   This reduction increases competitiveness, allowing lower prices or a higher margin.

Formulas Used:

Title	Formulas
Unit cost price	Cost of spare parts + Cost of direct labor + Indirect management cost
Selling price excluding VAT with brand	PV HT = Cost price ÷ (1 – Markup rate)
Overhead costs per scooter	Production overhead ÷ Number of scooters produced

Application: Green Light

States :

Lumière Verte, an innovative company specializing in ecological furniture, wants to develop a collection of designer chairs made from recycled wood. To optimize their pricing strategy, here is the data relating to their product:

• Cost of recycled materials: €12 per chair
• Manufacturing cost: €8 per chair
• Marketing fee per chair: €4
• Monthly fixed costs: €2 for a production volume of 000 chairs

Work to do :

1. Calculate the unit cost of the chair.
2. Determine the unit selling price excluding tax for a margin rate of 40%.
3. What is the distribution of fixed costs per chair?
4. If the goal is to reduce marketing costs by 25%, what will the new cost distribution be?
5. Discuss the commercial implications of this reduction on the perception of the Lumière Verte brand.

Proposed correction:

1. Unit cost includes all expenses to produce a chair.
   Unit Cost = Cost of Recycled Materials + Manufacturing Cost + Marketing Cost
   That is: €12 + €8 + €4 = €24.
   The unit cost price is therefore €24.

2. To obtain a margin rate of 40%, the calculation is: PV excluding tax = Cost price ÷ (1 – Margin rate).
   Which gives: €24 ÷ (1 – 0,40) = €40.
   The unit sales price excluding tax must be €40.

3. The distribution of fixed costs per chair is obtained by: Fixed costs ÷ Production volume

This calculation gives: €2 ÷ €000 = €500.
Each chair is therefore allocated €4 in fixed costs.

4. By reducing marketing costs by 25%, the cost becomes:
   Adjusted marketing costs = €4 x (1 – 0,25) = €3.
   New cost price = €12 + €8 + €3 = €23.
   The new cost distribution reduces the unit charge to €23.

5. Reducing marketing costs can influence the perceived quality of Lumière Verte. Less marketing can affect visibility, but if the strategy is well adjusted, this reduction can strengthen the green perception through more targeted communication.

Formulas Used:

Title	Formulas
Unit cost price	Cost of recycled materials + Manufacturing cost + Marketing costs
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Distribution of fixed costs	Fixed costs ÷ Production volume

Application: HealthTech Bio

States :

HealthTech Bio, a specialist in smart medical equipment, wants to understand the production cost of its new wearable health sensors. The data collected are:

• Cost of electronic chips: €25 per sensor
• Assembly cost: €15 per sensor
• Research and development costs: €10 per sensor
• Structure costs: €5 for the first series of 000 sensors

Work to do :

1. Establish the unit cost of the health sensor.
2. Calculate the required selling price excluding tax for a markup rate of 35%.
3. Determine the unit cost of the structure costs.
4. Consider a 20% increase in assembly costs. What impact does this have on unit cost?
5. What could be the strategic effects of this cost increase on HealthTech Bio's launch strategy?

Proposed correction:

1. The unit cost price is made up of the various costs associated with production.
   Unit cost = Cost of electronic chips + Cost of assembly + R&D costs
   That is to say: €25 + €15 + €10 = €50.
   The unit cost of the sensor is therefore €50.

2. For a markup rate of 35%, use this formula: PV excluding tax = Cost price ÷ (1 – Markup rate).
   Which gives: €50 ÷ (1 – 0,35) = €76,92.
   The required selling price excluding VAT is approximately €76,92.

3. The structure costs per sensor are calculated as follows: Structure costs ÷ Volume of sensors

Which gives: €5 ÷ 000 = €500.
Each sensor therefore supports €10 in structural costs.

4. With a 20% increase in assembly costs, the new cost is:
   New assembly cost = €15 x (1 + 0,20) = €18.
   New unit cost price = €25 + €18 + €10 = €53.
   The adjusted unit cost is €53.

5. Rising assembly costs may affect the pricing of the finished product. HealthTech Bio may need to review its pricing strategies and communication to justify the added value of its sensors, with an emphasis on advanced innovations.

Formulas Used:

Title	Formulas
Unit cost price	Cost of electronic chips + Cost of assembly + R&D costs
Selling price excluding VAT with brand	PV HT = Cost price ÷ (1 – Markup rate)
Unit structure costs	Structure costs ÷ Volume of sensors

Application: Naturell'Art

States :

Naturell'Art, a craft workshop specializing in wood sculptures, seeks to determine the cost prices for its personalized orders. The cost factors are:

• Cost of wood: €30 per sculpture
• Labor: €50 per sculpture
• Workshop maintenance costs: €7 per sculpture
• Fixed administrative costs: €900 for production of 100 sculptures

Work to do :

1. Calculate the unit cost price for a sculpture.
2. What unit selling price excluding tax should be set to obtain a margin rate of 25%?
3. What is the total cost of administrative fees allocated to each sculpture?
4. If Naturell'Art wants to reduce labor costs by 10%, what will be the impact on unit cost price?
5. Discuss the potential consequences on Naturell'Art's brand image if this reduction is poorly perceived by employees.

Proposed correction:

1. The unit cost price incorporates all costs incurred in the production of each sculpture.
   Unit cost = Cost of wood + Labor + Maintenance costs
   So: €30 + €50 + €7 = €87.
   The unit cost of a sculpture is €87.

2. For a margin rate of 25%, the formula indicates: PV HT = Cost price ÷ (1 – Margin rate).
   So: €87 ÷ (1 – 0,25) = €116.
   The required unit sales price excluding VAT is €116.

3. Distribution of administrative costs:

Fee per sculpture = Fixed administrative costs ÷ Number of sculptures
Which is equivalent to €900 ÷ 100 = €9.
The administrative fee per sculpture is €9.

4. Reducing the workforce by 10% implies:
   New labor cost = €50 x (1 – 0,10) = €45.
   New cost price = €30 + €45 + €7 = €82.
   With this drop, the unit cost price falls to €82.

5. A decrease that is poorly perceived by artisans can lead to a drop in motivation, impacting the quality of the sculptures. If partnerships deteriorate, the authenticity of Naturell'Art could be called into question, thus tarnishing the brand image.

Formulas Used:

Title	Formulas
Unit cost price	Cost of wood + Labor + Maintenance costs
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Administrative fees per unit	Fixed administrative costs ÷ Number of sculptures

Application: Express Kitchen

States :

Cuisine Express, a specialist in custom kitchens, analyses production costs to optimise its profit margins. The current financial data for a standard kitchen are:

• Cost of materials: €500 per kitchen
• Labor cost: €300 per kitchen
• Design cost: €100 per kitchen
• Fixed overheads: €6 for a series of 000 kitchens

Work to do :

1. What is the unit cost price for a kitchen?
2. Calculate the unit selling price excluding tax required to obtain a markup rate of 15%.
3. What is the share of overheads in the unit cost price?
4. If Cuisine Express increases its production by 25%, how does this increase influence the cost price?
5. Analyze the effects that cost variation can have on Cuisine Express's pricing strategy.

Proposed correction:

1. Unit cost includes all costs associated with the production of a kitchen.
   Unit Cost = Material Cost + Labor Cost + Design Cost
   This gives: €500 + €300 + €100 = €900.
   The unit cost price for a kitchen is €900.

2. To obtain a markup rate of 15%, use: PV excluding tax = Cost price ÷ (1 – Markup rate).
   This calculation gives: €900 ÷ (1 – 0,15) = €1.
   The required selling price excluding tax is €1.

3. Overhead costs per unit:

Overhead Allocation = Fixed Overhead ÷ Manufacturing Volume
Which is equivalent to €6 ÷ 000 = €20.
Overhead costs are €300 per kitchen.

4. With a 25% increase in production, the equation is:
   New volume = 20 x 1,25 = 25 kitchens.
   New overhead cost per kitchen = €6 ÷ 000 = €25.
   Cost price decreases as volume increases, helping to reduce individual cost.

5. A reduction in cost improves potential margins and allows more flexibility in pricing strategies. Cuisine Express could attract more customers through competitive pricing or use the increased margin to reinvest in innovation or service.

Formulas Used:

Title	Formulas
Unit cost price	Material Cost + Labor Cost + Design Cost
Selling price excluding VAT with brand	PV HT = Cost price ÷ (1 – Markup rate)
Overhead cost per unit	Fixed overhead costs ÷ Manufacturing volume

Application: SportsFusion

States :

SportsFusion, a manufacturer of innovative sports equipment, is focused on launching its new tennis racket. To optimize its decision-making process, the company breaks down the costs as follows:

• Cost of materials: €22 per racket
• Manufacturing cost: €18 per racket
• Advertising cost incurred: €1 for an initial series of 800 rackets
• Other fixed charges: €9 per racket

Work to do :

1. Calculate the unit cost for a single racket.
2. Determine the unit selling price excluding tax required for a margin rate of 28%.
3. What is the impact of advertising cost on each racket?
4. If the cost of materials increases by 10%, what would the new unit cost be?
5. What impact does this increase have on SportsFusion's profitability and positioning?

Proposed correction:

1. The unit cost price is made up of several elements.
   Cost price = Cost of materials + Cost of manufacturing + Other fixed costs
   Which gives: €22 + €18 + €9 = €49.
   The unit cost of a racket is €49.

2. With a margin target of 28%, we apply: PV excluding tax = Cost price ÷ (1 – Margin rate).
   Calculation: €49 ÷ (1 – 0,28) = €68,06.
   The unit sales price excluding tax must be €68,06.

3. The impact of the advertising cost per racket is calculated as follows:

Advertising cost per racket = Total advertising cost ÷ Number of rackets
With €1 ÷ €800 = €300.
Each racket supports €6 for advertising costs.

4. A 10% increase in material costs leads to:
   New cost of materials = €22 x 1,10 = €24,20.
   New unit cost price = €24,20 + €18 + €9 = €51,20.
   Updates, the cost price increases to €51,20.

5. Rising costs can reduce profit margins if not reflected in the selling price. For SportsFusion, this may require a review of pricing strategy or efforts to reduce other costs, in order to maintain its competitive position without compromising profitability.

Formulas Used:

Title	Formulas
Unit cost price	Cost of materials + Cost of manufacturing + Other fixed costs
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Advertising cost per racket	Total advertising cost ÷ Number of rackets

Application: TotoTech

States :

TotoTech, a recreational drone startup, is currently evaluating the costs associated with its flagship model to refine its pricing. Here are the cost details:

• Component costs: €85 per drone
• Assembly cost: €30 per drone
• Logistics costs: €8 per drone
• Structural costs: €3 spread over a production of 000 drones

Work to do :

1. Calculate the unit cost of a drone.
2. At what unit selling price excluding VAT should the drone be sold to obtain a margin rate of 40%?
3. What is the share of structural costs in the unit cost of a drone?
4. If a sustainable packaging option, adding €5 cost per drone, is chosen, how will the cost price be adjusted?
5. What could be the impacts on customer loyalty following this sustainable packaging option?

Proposed correction:

1. The unit cost price is calculated by adding up all costs per drone.
   Unit cost = Component costs + Assembly costs + Logistics costs
   Which gives: €85 + €30 + €8 = €123.
   The unit cost of a drone is €123.

2. For a margin rate of 40%, the selling price is: PV excluding tax = Cost price ÷ (1 – Margin rate).
   Which gives: €123 ÷ (1 – 0,40) = €205.
   The required unit sales price excluding VAT is €205.

3. Distribution of structural loads:

Charges per drone = Structural charges ÷ Total production
Calculation: €3 ÷ 000 = €100.
The structural costs represent €30 per drone.

4. With the addition of €5 sustainable packaging, the adjusted cost is:
   New unit cost price = €85 + €30 + €8 + €5 = €128.
   The new unit cost price is €128.

5. Adopting sustainable packaging solutions can strengthen TotoTech’s green image, encouraging loyalty from environmentally conscious customers, while attracting new customers who value sustainability. Of course, the increased costs must be communicated to the customer, so that they are perceived as added value.

Formulas Used:

Title	Formulas
Unit cost price	Component costs + Assembly cost + Logistics costs
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Structural loads by drone	Structural charges ÷ Total production

Application: Ivory Flowers

States :

Fleurs d'Ivoire, a silk floral decoration company, is developing a new seasonal collection. In order to prepare for its marketing, it wants to determine the precise costs associated with each floral arrangement. The following information is available:

• Cost of silk flowers: €60 per arrangement
• Labor cost: €20 per arrangement
• Communication costs: €2 for 500 arrangements
• Indirect costs: €10 per arrangement

Work to do :

1. Determine the unit cost per floral arrangement.
2. What unit selling price excluding tax would allow a margin rate of 50% to be achieved?
3. How are communication costs allocated to each arrangement?
4. If indirect costs were reduced by 15%, what would be the effects on the cost price?
5. Analyze how increased communication could positively influence public perception of this collection.

Proposed correction:

1. To determine the unit cost price:
   Unit cost = Flower cost + Labor cost + Indirect costs
   Calculation: €60 + €20 + €10 = €90.
   The unit cost per floral arrangement is €90.

2. With a target margin rate of 50%, the necessary price is: PV excluding VAT = Cost price ÷ (1 – Margin rate).
   Calculation: €90 ÷ (1 – 0,50) = €180.
   The unit sales price excluding tax must be €180.

3. Communication costs are divided as follows:

Fee per arrangement = Communication fee ÷ Number of arrangements
Which is equivalent to €2 ÷ €500 = €500.
The communication fee per arrangement is €5.

4. A 15% decrease in indirect costs implies a new calculation:
   New indirect cost = €10 x (1 – 0,15) = €8,50.
   New cost price = €60 + €20 + €8,50 = €88,50.
   This reduction lowers the cost price to €88,50.

5. Increased communication around the new collection can generate increased public appeal, leading to improved company awareness and potentially sales. Such an investment should be seen as a way to enhance the brand and capture a wider audience.

Formulas Used:

Title	Formulas
Unit cost price	Cost of flowers + Cost of labor + Indirect costs
Selling price excluding VAT with margin	PV HT = Cost price ÷ (1 – Margin rate)
Communication costs per unit	Communication costs ÷ Number of arrangements