Summary
Application: Grocery of the Future
States :
L'Épicerie du Future wants to optimize its marketing strategy. It sells baskets of organic products. Each basket is sold for €30 including tax. The unit purchase price for the store is €20 excluding tax. Each month, the grocery store sells an average of 200 baskets. It wants to evaluate its profitability by calculating the margin, the margin rate, the brand rate and by proposing a possible improvement.
Work to do :
- Calculate the unit margin made by the Epicerie du Future on the sale of a basket.
- Determine the margin rate for each basket sold.
- Calculate the markup rate for a basket.
- What is the overall monthly margin if 200 baskets are sold?
- Propose a strategy to increase the overall profitability of these baskets.
Proposed correction:
-
Unit margin:
The unit margin is the difference between the selling price excluding VAT and the purchasing price excluding VAT.
Knowing that VAT is 20%, PV excluding VAT = €30 ÷ 1,2 = €25.
Unit margin = €25 – €20 = €5.
The unit margin is €5 per basket. -
Margin rate:
The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€25 – €20) ÷ €20) x 100 = 25%.
The margin rate is 25%. -
Mark rate:
The formula is: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€25 – €20) ÷ €25) x 100 = 20%.
The markup rate is 20%.
-
Monthly overall margin:
Overall margin = Unit margin x quantity sold
Overall margin = €5 x 200 = €1.
The overall monthly margin is €1. -
Improvement strategy:
To increase profitability, the Grocery Store could seek to optimize its purchasing costs, for example by negotiating better prices with its suppliers or increasing the selling price while improving the perceived value of the basket, for example via premium products or attractive packaging.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Overall margin | Unit margin x quantity sold |
Application: The Modern Bakery
States :
La Boulangerie Moderne wants to understand the profitability of its gourmet croissants. Each croissant sells for €2,50 including tax. The manufacturing cost (wrap and ingredients) of a croissant is €1,50 excluding tax, with a VAT of 5,5%. The bakery sells an average of 600 croissants per week.
Work to do :
- Calculate the tax-free selling price of a croissant.
- What is the unit margin on the sale of a croissant?
- Determine the margin rate made on each croissant.
- Calculate the markup rate of the croissant.
- Analyze a method that the bakery could apply to increase its sales.
Proposed correction:
-
Selling price excluding VAT:
VAT = 5,5%. PV excluding VAT = €2,50 ÷ 1,055 = €2,37.
The selling price excluding tax of a croissant is €2,37. -
Unit margin:
Unit margin = PV HT – PA HT. With PA HT = €1,50.
Unit margin = €2,37 – €1,50 = €0,87.
The unit margin is €0,87 per croissant. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€2,37 – €1,50) ÷ €1,50) x 100 = 58%.
The margin rate is 58%.
-
Mark rate:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€2,37 – €1,50) ÷ €2,37) x 100 = 37%.
The markup rate is 37%. -
Method of increasing sales:
La Boulangerie Moderne could launch an attractive promotional campaign, reduce the price of bulk orders or introduce loyalty offers to encourage regular purchases.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: TechVie Innovations
States :
TechVie Innovations manufactures electronic tablets. Their unit production cost is €150 excluding VAT. VAT is 20%. The tablets are sold to the public at €300 including VAT. The company plans to sell 300 units per quarter.
Work to do :
- Calculate the tax-free selling price of a tablet.
- What is the amount of unit margin made on each tablet?
- Calculate the margin rate for each tablet.
- Determine the overall quarterly margin if 300 tablets are sold.
- Discuss the impact a 10% price reduction could have on sales volume and profitability.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding VAT = €300 ÷ 1,2 = €250.
The sales price excluding tax of a tablet is €250. -
Unit margin:
Unit margin = PV HT – PA HT. With PA HT = €150.
Unit margin = €250 – €150 = €100.
The unit margin is €100 per tablet. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€250 – €150) ÷ €150) x 100 = 66,67%.
The margin rate is 66,67%.
-
Quarterly overall margin:
Overall margin = Unit margin x quantity sold.
Overall margin = €100 x 300 = €30.
The overall quarterly margin is €30. -
Impact of a 10% price reduction:
A price reduction could increase sales volume through increased attractiveness, but unit margin would decrease. A detailed cost-benefit analysis would be required to determine the net effect on profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Overall margin | Unit margin x quantity sold |
Application: ArtMode Creations
States :
ArtMode Créations is a fashion company that creates handcrafted accessories. The production cost of a handbag is €50 excluding VAT. The applicable VAT is 20%. The bags are sold at a public price of €120 including VAT. The company plans to sell 100 bags during a three-month campaign.
Work to do :
- Determine the tax-free selling price of a handbag.
- Calculate the unit margin made on each bag.
- Identify the margin rate of the bags.
- Determine the overall margin if 100 bags are sold during the campaign.
- Suggest a suggestion to increase margin while maintaining a competitive advantage.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding VAT = €120 ÷ 1,2 = €100.
The sales price excluding tax of a handbag is €100. -
Unit margin:
Unit margin = PV HT – PA HT. With PA HT = €50.
Unit margin = €100 – €50 = €50.
The unit margin is €50 per bag. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€100 – €50) ÷ €50) x 100 = 100%.
The margin rate is 100%.
-
Overall campaign margin:
Overall margin = Unit margin x quantity sold.
Overall margin = €50 x 100 = €5.
The overall margin of the campaign is €5. -
Suggestion to increase margin:
ArtMode Créations could consider reducing the cost of production by obtaining raw materials of equivalent quality at more competitive prices, or even amplifying the added value of the bags through limited editions, all without sacrificing the current competitive advantage.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Overall margin | Unit margin x quantity sold |
Application: HealthPlus Pharmaceutical
States :
SantéPlus is a pharmaceutical company that produces food supplements. Each box is sold for €45 including tax and costs SantéPlus €25 excluding tax to manufacture. VAT is 5,5%. Annual demand is 1 boxes. The company wants to calculate the impact of its cost structure and sales price on its profitability.
Work to do :
- What is the sales price excluding tax of a box?
- Calculate the unit margin made on each box.
- Evaluate the margin rate of the supplements.
- Determine the annual overall margin.
- Propose a strategic decision to improve turnover.
Proposed correction:
-
Selling price excluding VAT:
VAT = 5,5%. PV excluding VAT = €45 ÷ 1,055 = €42,65.
The sales price excluding tax for a box is €42,65. -
Unit margin:
Unit margin = PV HT – PA HT. With PA HT = €25.
Unit margin = €42,65 – €25 = €17,65.
The unit margin is €17,65 per box. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€42,65 – €25) ÷ €25) x 100 = 70,6%.
The margin rate is 70,6%.
-
Annual overall margin:
Overall margin = Unit margin x Annual demand.
Total margin = €17,65 x €1 = €500.
The annual overall margin is €26. -
Strategic decision:
SantéPlus could introduce a wider range of complementary products in order to capture a wider market and thus increase its turnover. In addition, awareness campaigns on the benefits of supplements could increase sales.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Annual overall margin | Unit Margin x Annual Demand |
Application: Ecomatic Solutions
States :
Écomatique Solutions sells eco-friendly office cleaning products. The purchase price of each product is €8 excluding VAT, and they are sold at €20 including VAT. The applicable VAT is 20%. The expected number of monthly sales is 500 units.
Work to do :
- What is the selling price excluding tax of a product?
- Calculate the unit margin made on each product sold.
- Determine the markup rate of the products.
- Estimate the overall monthly margin achieved.
- Propose an approach to reduce costs without compromising quality.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding VAT = €20 ÷ 1,2 = €16,67.
The sales price excluding tax is €16,67. -
Unit margin:
Unit margin = PV excluding VAT – PA excluding VAT. PA excluding VAT = €8.
Unit margin = €16,67 – €8 = €8,67.
The unit margin is €8,67. -
Mark rate:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€16,67 – €8) ÷ €16,67) x 100 = 52%.
The markup rate is 52%.
-
Monthly overall margin:
Overall margin = Unit margin x monthly sales.
Overall margin = €8,67 x 500 = €4.
The overall monthly margin is €4. -
Approach to reducing costs:
Écomatique Solutions could consider purchasing in volume to obtain discounts, or even streamlining its logistics to reduce transportation costs.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Monthly overall margin | Unit margin x monthly sales |
Application: StudioTech Productions
States :
StudioTech Productions produces audiovisual equipment for professionals. They are launching a new studio microphone at a price of €600 including VAT. The manufacturing cost is €400 excluding VAT. The applicable VAT is 20%. They plan to sell 150 units in the first year.
Work to do :
- Calculate the selling price excluding tax of the studio microphone.
- What is the unit margin on this product?
- Calculate the margin rate for this microphone.
- What will be the overall annual margin if 150 units are sold?
- Suggest a sales strategy to maximize market penetration.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding VAT = €600 ÷ 1,2 = €500.
The selling price excluding tax of a microphone is €500. -
Unit margin:
Unit margin = PV excluding VAT – PA excluding VAT. PA excluding VAT = €400.
Unit margin = €500 – €400 = €100.
The unit margin is €100. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€500 – €400) ÷ €400) x 100 = 25%.
The margin rate is 25%.
-
Annual overall margin:
Overall margin = Unit margin x units sold.
Overall margin = €100 x 150 = €15.
The annual overall margin is €15. -
Sales strategy:
StudioTech Productions could use trade show demonstrations and offer free trials for professionals to encourage early product adoption.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Annual overall margin | Unit margin x units sold |
Application: SolarEco Energies
States :
SolarEco Energies, a company specializing in solar solutions, markets a domestic solar battery for €1 including tax. The production cost is €000 excluding tax, with a VAT of 650%. They plan to produce and sell 20 batteries per year.
Work to do :
- Calculate the selling price excluding tax of a solar battery.
- What is the unit margin made on each sale?
- What is the margin rate of these solar batteries?
- Determine the overall annual margin if 400 batteries are sold.
- Suggest a method to increase the turnover of these batteries.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding tax = €1 ÷ 000 = €1,2.
The sales price excluding tax of a battery is €833,33. -
Unit margin:
Unit margin = PV excluding VAT – PA excluding VAT. PA excluding VAT = €650.
Unit margin = €833,33 – €650 = €183,33.
The unit margin is €183,33. -
Margin rate:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€833,33 – €650) ÷ €650) x 100 = 28,2%.
The margin rate is 28,2%.
-
Annual overall margin:
Overall margin = Unit margin x quantity sold.
Overall margin = €183,33 x 400 = €73.
The annual overall margin is €73. -
Method to increase turnover:
SolarEco could develop its distribution network through partnerships with solar installers and amplify its online presence with awareness campaigns on the benefits of renewable energies.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Annual overall margin | Unit margin x quantity sold |
Application: LumiArt Decorations
States :
LumiArt Décorations designs handmade lamps. Each lamp costs €80 excluding VAT to produce and is sold at €150 including VAT. VAT is 20%. They estimate they will sell 200 lamps during the fourth quarter.
Work to do :
- Determine the selling price excluding tax of a lamp.
- Calculate the unit margin made on each lamp sold.
- Identify the markup rate for these lamps.
- What will be the overall margin for the fourth quarter if 200 lamps are sold?
- Brainstorm a product diversification idea for LumiArt and discuss its potential impact.
Proposed correction:
-
Selling price excluding VAT:
VAT = 20%. PV excluding VAT = €150 ÷ 1,2 = €125.
The selling price excluding tax of a lamp is €125. -
Unit margin:
Unit margin = PV excluding VAT – PA excluding VAT. PA excluding VAT = €80.
Unit margin = €125 – €80 = €45.
The unit margin is €45. -
Mark rate:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€125 – €80) ÷ €125) x 100 = 36%.
The markup rate is 36%.
-
Overall margin for the fourth quarter:
Overall margin = Unit margin x quantity sold.
Overall margin = €45 x 200 = €9.
The overall margin for the fourth quarter is €9. -
Diversification idea:
LumiArt could diversify by introducing wall decoration accessories to complement their lamps, thus expanding their offering. This could attract new customers and increase cross-selling, consequently boosting overall revenue.
Formulas Used:
| Title | Formulas |
|---|---|
| PV HT | VAT included ÷ (1 + VAT rate) |
| Unit margin | PV HT – PA HT |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Overall margin for the quarter | Unit margin x quantity sold |