Summary
Application: Gourmet House
States :
Maison Gourmande is a neighborhood bakery that wants to review its pricing strategy for several of its products. It recently introduced a new cake and is looking to determine the optimal selling price that will allow it to maximize its margin while remaining competitive. The purchase price excluding tax is €8 per unit. The managers want a markup rate of 30% for this product. In addition, the expected annual demand for this cake is 500 units.
Work to do :
- Calculate the selling price excluding tax that would allow you to achieve the desired markup rate.
- Determine the amount of VAT to apply (20%) to obtain the sales price including VAT.
- Calculate the unit margin of this cake.
- Evaluate the overall margin for a full year.
- Analyze the impact on revenue if demand exceeds forecasts by 10%.
Proposed correction:
-
To obtain a markup rate of 30%, we use the formula:
PV HT = PA HT ÷ (1 – Mark rate).
Substituting, €8 ÷ (1 – 0,30) = €11,43.
The selling price excluding VAT should be €11,43 to achieve the desired markup rate. -
To find the sales price including tax, we apply the VAT of 20%:
VAT = PV HT x 0,20.
VAT = €11,43 x 0,20 = €2,29.
The sales price including tax is therefore €11,43 + €2,29 = €13,72. -
The unit margin is calculated by:
Unit margin = PV HT – PA HT.
Unit margin = €11,43 – €8 = €3,43.
The unit margin for this cake is €3,43.
-
The annual overall margin is:
Overall margin = Unit margin x Quantity sold.
Overall margin = €3,43 x 500 = €1715.
For a full year, the overall margin is €1715. -
If demand increases by 10%, it increases to 500 + (500 x 0,10) = 550 cakes.
New turnover = 550 x €13,72 = €7546.
The increase in demand would lead to an increase in turnover to €7546.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Mark rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Overall Margin | Unit margin x Quantity sold |
| New Request | Initial demand + (Initial demand x %) |
Application: TechnoWorld
States :
TechnoWorld, a supplier of electronic devices, must set the selling price of a new camera whose purchase cost is €200 excluding VAT. To remain competitive, the company wants to guarantee a margin rate of 40%. In addition, they anticipate a sales volume of 1 units over the year.
Work to do :
- Calculate the optimal selling price excluding tax to achieve the margin rate of 40%.
- Calculate the VAT rate at 20% on this selling price excluding VAT.
- Estimate the profit made per unit sold.
- Determine the overall margin if expected demand is met.
- Analyze the impact on cash flow if storage costs represent 5% of turnover.
Proposed correction:
-
We use the formula for the margin rate:
PV HT = PA HT ÷ (1 – Margin rate).
PV excluding tax = €200 ÷ (1 – 0,40) = €333,33.
The optimal selling price excluding VAT is €333,33. -
To calculate VAT at 20%:
VAT = PV HT x 0,20.
VAT = €333,33 x 0,20 = €66,67.
The sales price including tax is therefore €333,33 + €66,67 = €400. -
The profit per unit sold is:
Unit profit = PV excluding tax – PA excluding tax.
Unit profit = €333,33 – €200 = €133,33.
The profit per unit is €133,33.
-
The annual overall margin is:
Overall margin = Unit profit x Quantity sold.
Total margin = €133,33 x €1 = €200.
The overall expected margin is therefore €160. -
If the storage cost is 5% of turnover:
Turnover = €333,33 x 1 = €200.
Storage cost = €399 x 996 = €0,05.
The storage cost will amount to €19 and will affect cash flow accordingly.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Margin rate) |
| VAT | PV HT x 0,20 |
| Unit Profit | PV HT – PA HT |
| Overall Margin | Unit Profit x Quantity Sold |
| Storage Cost | Turnover x Storage percentage |
Application: Green Line Wines
States :
Ligne Verte Vins is a winery specializing in organic wines. They recently acquired a selection of rare wines at a purchase price excluding tax of €45 per bottle. Their goal is to set a margin rate of 55%. The expected annual sale for these bottles is 200 units.
Work to do :
- Determine the selling price excluding tax that would allow Ligne Verte Vins to respect their desired margin rate.
- Calculate the sales price including VAT of 20%.
- Calculate the unit margin for each bottle sold.
- Determine the expected annual overall margin.
- Discuss the implications for net profit if a promotion will offer a 10% discount on the inclusive price.
Proposed correction:
-
With a margin rate of 55%, the formula applied is:
PV HT = PA HT ÷ (1 – Margin rate).
PV excluding tax = €45 ÷ (1 – 0,55) = €100.
The selling price excluding VAT should be €100. -
To determine the sales price including tax:
VAT = PV HT x 0,20.
VAT = €100 x 0,20 = €20.
So, the sales price including tax is €100 + €20 = €120. -
The unit margin is calculated by:
Unit margin = PV HT – PA HT.
Unit margin = €100 – €45 = €55.
The unit margin is €55.
-
The overall margin is deduced by:
Overall margin = Unit margin x Quantity sold.
Overall margin = €55 x 200 = €11.
The expected overall margin is €11 per year. -
During a promotion with a 10% reduction on the price including tax:
New Price including VAT = €120 – (€120 x 0,10) = €108.
Profit per bottle after promo = (€108 ÷ 1,2) – €45 = €45.
Although reduced, net profit sees a decrease.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Margin rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Overall Margin | Unit margin x Quantity sold |
| New Price including VAT | Price including VAT – (Price including VAT x % Reduction) |
| Profit after Promotion | (New Price including VAT ÷ (1 + VAT rate)) – PA excluding VAT |
Application: EcoDesign
States :
EcoDesign offers innovative eco-friendly furniture. A new collection has a purchase cost of €600 excluding VAT per piece. The company wants to review its sales price so that the mark-up rate is 35%. The company projects a sales volume of 300 units for this offer.
Work to do :
- Calculate the selling price excluding tax required to achieve the desired markup rate.
- Determine the sales price including tax, taking into account 20% VAT.
- Calculate the unit margin obtained from the fixed selling price.
- Estimate the overall margin made on the entire collection.
- Discuss the implications of increasing costs to €650 excluding VAT and what the new selling price excluding VAT would be to maintain the initial mark-up rate.
Proposed correction:
-
The calculation to obtain a markup rate of 35% is:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = €600 ÷ (1 – 0,35) = €923,08.
The selling price excluding VAT must be set at €923,08. -
To establish the sales price including tax:
VAT = PV HT x 0,20.
VAT = €923,08 x 0,20 = €184,62.
The sales price including tax is therefore €923,08 + €184,62 = €1. -
The unit margin is calculated by:
Unit margin = PV HT – PA HT.
Unit margin = €923,08 – €600 = €323,08.
The unit margin is €323,08.
-
The overall margin is:
Overall margin = Unit margin x Quantity sold.
Overall margin = €323,08 x 300 = €96.
The overall margin for the collection should be €96. -
If the purchase cost increases to €650 excluding VAT:
New PV excluding tax = €650 ÷ (1 – 0,35) = €1.
To maintain a markup rate of 35%, the new PV excluding tax must be €1.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Mark rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Overall Margin | Unit margin x Quantity sold |
| New PV HT with Cost | New PA HT ÷ (1 – Mark rate) |
Application: InnovMobiles
States :
The start-up InnovMobiles, specializing in connected accessories, is looking to introduce a smart bracelet to the market. The purchase price of each bracelet is €30 excluding VAT. In order to get ahead of the competition, they want to set a sales price offering a margin rate of 25%. The sales forecast is 5 units for the first year.
Work to do :
- Calculate the selling price excluding tax targeted by InnovMobiles to obtain the desired margin rate.
- Determine the sales price including tax, taking into account the 20% VAT.
- Determine the unit margin achievable with this selling price.
- Calculate the total annual margin based on the sales projection.
- Evaluate the impact on revenue if, after six months, the company decides to lower the price by 5% to stimulate additional sales.
Proposed correction:
-
To obtain a margin rate of 25%, you must calculate:
PV HT = PA HT ÷ (1 – Margin rate).
PV excluding tax = €30 ÷ (1 – 0,25) = €40.
The selling price excluding VAT should be set at €40. -
To calculate the sales price including tax:
VAT = PV HT x 0,20.
VAT = €40 x 0,20 = €8.
The sales price including tax is therefore €40 + €8 = €48. -
The unit margin is obtained as follows:
Unit margin = PV HT – PA HT.
Unit margin = €40 – €30 = €10.
The unit margin is therefore €10.
-
The total annual margin would be:
Overall margin = Unit margin x Quantity sold.
Total margin = €10 x €5 = €000.
The expected annual margin is €50. -
If the price is reduced by 5% after six months:
New PV including VAT = €48 – (€48 x 0,05) = €45,60.
New PV excluding VAT = €45,60 ÷ 1,20 = €38.
The price adjustment affects the turnover dynamics, with re-evaluated forecasts.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Margin rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Total Annual Margin | Unit margin x Quantity sold |
| New Price including VAT | Price including VAT – (Price including VAT x % Reduction) |
| New PV HT | New PV including VAT ÷ (1 + VAT rate) |
Application: BioCosmetics
States :
BioCosmetics is preparing to launch a new line of organic moisturizing creams. The purchase price of the boxes of cream is €15 excluding VAT each. They are aiming for a 20% markup rate to remain profitable and competitive on the market. 3 units are planned for sale for the launch.
Work to do :
- Note the selling price excluding tax that BioCosmetics should apply to reach the set markup rate.
- Calculate the sales price including VAT by adding the applicable VAT of 20%.
- Calculate the margin obtained per unit sold.
- Calculate the total margin expected for the entire sale.
- Imagine a scenario where production costs increase by €5 per unit. What should the new selling price excluding VAT be to maintain the same markup rate?
Proposed correction:
-
For a markup rate of 20%, we calculate:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = €15 ÷ (1 – 0,20) = €18,75.
The selling price excluding VAT should be €18,75. -
The sales price including tax is obtained as follows:
VAT = PV HT x 0,20.
VAT = €18,75 x 0,20 = €3,75.
The sales price including tax is therefore €18,75 + €3,75 = €22,50. -
The unit margin is:
Unit margin = PV HT – PA HT.
Unit margin = €18,75 – €15 = €3,75.
So the unit margin is €3,75.
-
The overall margin is expected to be:
Total margin = Unit margin x Quantity sold.
Total margin = €3,75 x 3 = €000.
The total expected margin is €11. -
If the cost increases by €5 per cream, i.e. €20 excluding VAT:
New PV excluding VAT = €20 ÷ (1 – 0,20) = €25.
Therefore, to maintain the same markup rate, the new selling price excluding tax must be €25.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Mark rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Total Margin | Unit margin x Quantity sold |
| New PV HT with Cost | New PA HT ÷ (1 – Mark rate) |
Application: Art&Luxury
States :
Art&Luxe, an art gallery, offers a set of high-quality sculptures. The cost of manufacturing each piece is €500 excluding VAT. The goal is to achieve a margin rate of 50%. The gallery is preparing to sell 50 units per year.
Work to do :
- Calculate the selling price excluding tax to reach the target margin rate.
- Evaluate the sales price including VAT by adding the VAT of 5,5%.
- Calculate the unit margin made on each sale.
- Determine the total margin achieved if all sculptures are sold.
- Consider the impact that a 10% discount on the all-inclusive price could have during a promotional sale.
Proposed correction:
-
The PV HT corresponding to the margin rate of 50% is calculated by:
PV HT = PA HT ÷ (1 – Margin rate).
PV excluding tax = €500 ÷ (1 – 0,50) = €1.
Therefore, the selling price excluding VAT must be €1. -
The sales price including tax is:
VAT = PV HT x 0,055.
VAT = €1 x 000 = €0,055.
The sales price including tax is €1 + €000 = €55. -
The unit margin is obtained by:
Unit margin = PV HT – PA HT.
Unit margin = €1 – €000 = €500.
The unit margin is €500 per sculpture.
-
The total margin for all sales is:
Total Margin = Unit Margin x Quantity.
Total margin = €500 x €50 = €25.
The total margin achieved will amount to €25. -
During a promotion with a 10% reduction on the price including tax:
Price with discount = €1 – (€055 x 1) = €055.
The 10% discount could attract more buyers, while reducing the unit margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Margin rate) |
| VAT | PV HT x 0,055 |
| Unit Margin | PV HT – PA HT |
| Total Margin | Unit Margin x Quantity |
| Price with Discount | Price including VAT – (Price including VAT x % Reduction) |
Application: SolarTech
States :
SolarTech offers solar installations. Their new offer includes panels purchased at €150 excluding VAT each. They want a sales price that includes a 45% markup. 800 units of solar panels are part of the sales forecast for the next quarter.
Work to do :
- Find the required selling price excluding VAT for the expected markup rate.
- Establish the sales price including tax by adding VAT at 20%.
- Identify the margin generated per unit sold.
- Calculate the total amount of projected margin.
- Present the effect of cost optimization that lowers the purchase cost to €140 excluding VAT and how this influences the margin.
Proposed correction:
-
The formula for the selling price excluding VAT in order to obtain the desired markup rate is:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = €150 ÷ (1 – 0,45) = €272,73.
The selling price excluding VAT must be €272,73. -
To obtain the sales price including tax, we have:
VAT = PV HT x 0,20.
VAT = €272,73 x 0,20 = €54,55.
The sales price including tax will therefore be €272,73 + €54,55 = €327,28. -
The margin per unit sold is calculated as follows:
Unit margin = PV HT – PA HT.
Unit margin = €272,73 – €150 = €122,73.
Therefore, the unit margin is €122,73.
-
To know the total projected margin, we devote:
Total Margin = Unit Margin x Expected Quantity Sold.
Total margin = €122,73 x €800 = €98.
So the total margin will be €98. -
With a reduction in the purchase cost to €140 excluding VAT:
New Unit Margin = €272,73 – €140 = €132,73.
Lower costs improve unit margin while providing pricing flexibility.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Mark rate) |
| VAT | PV HT x 0,20 |
| Unit Margin | PV HT – PA HT |
| Total Margin | Unit Margin x Expected Quantity Sold |
| New Unit Margin | PV HT – New PA HT |
Application: GourmetMarket
States :
GourmetMarket specializes in the sale of gourmet products. The company plans to launch a gourmet basket for the holidays, including various products for a total purchase cost of €100 excluding VAT. They are aiming for a margin rate of 45%. 500 baskets are expected to be sold during the season.
Work to do :
- Calculate the selling price excluding tax required to achieve the expected margin rate.
- Determine the sales price including VAT, taking into account the 5,5% VAT.
- Calculate the margin per basket sold.
- Deduct the estimated overall margin on all basket sales.
- Imagine a change in strategy that would increase the margin rate to 50%, and calculate the new required selling price excluding VAT.
Proposed correction:
-
To achieve the 45% margin rate, the formula is:
PV HT = PA HT ÷ (1 – Margin rate).
PV excluding tax = €100 ÷ (1 – 0,45) = €181,82.
The necessary selling price excluding tax is therefore €181,82. -
To obtain the sales price including tax:
VAT = PV HT x 0,055.
VAT = €181,82 x 0,055 = €10.
The sales price including tax will be €181,82 + €10 = €191,82. -
The unit margin is:
Unit margin = PV HT – PA HT.
Unit margin = €181,82 – €100 = €81,82.
The unit margin for each basket is €81,82.
-
The overall margin is evaluated as:
Total margin = Unit margin x Quantity sold.
Total margin = €81,82 x €500 = €40.
The overall expected margin is therefore €40. -
By increasing the margin rate to 50%:
New PV excluding VAT = €100 ÷ (1 – 0,50) = €200.
The new selling price excluding tax must be €200 to obtain this margin rate.
Formulas Used:
| Title | Formulas |
|---|---|
| Sale price excl. VAT | PA HT ÷ (1 – Margin rate) |
| VAT | PV HT x 0,055 |
| Unit Margin | PV HT – PA HT |
| Total Margin | Unit margin x Quantity sold |
| New PV HT with Margin | PA HT ÷ (1 – New Margin Rate) |