Welcome to this article on exercises on business calculations and more specifically on how to calculate a margin rate. Here you will find no less than 11 detailed corrected management exercises on commercial calculations for Operational Management.
At the end of this article, you will know how to do a margin rate calculation in business calculations without any worries.
In this section:
- Application: Fishing House
- Application: Le Petit Marchand Company
- Application: TechnoSmart Company
- Application: Fashion Hour Fashion Store
- Application: The Gourmet Pastry Company
- Application: Fashion Store
- Application: The Center Bookstore
- Application: Golden Bakery
- Application: Gourmet Chocolaterie
- Application: Clothing store “Fashion Trend”
- Application: Mediverts SAS
Application: Fishing House
States :
La Maison de la Pêche is a small family business specializing in the sale of fishing equipment. To remain competitive, La Maison de la Pêche must regularly analyze its margin rates.
In addition, the company wants to increase its profits while remaining competitive. You are the financial manager of the Maison de la Pêche.
You have been tasked with analyzing the company's margin performance. The following information is available to you:
– The purchase cost excluding tax of a fishing rod is €20.
– La Maison de la Pêche sells each rod at a tax-free sale price of €40.
Work to do :
1. Calculate the margin rate on the fishing rod.
2. Suppose that Maison de la Pêche wants to increase its margin rate to 75%. What should be the new sales price excluding taxes?
3. What would happen if the tax-free purchase cost of the fishing rod increased by 10% but the selling price remained stable?
4. How many units should Maison de la Pêche sell to make a profit of €1 if the purchase cost excluding tax is €000 and the desired margin rate is 22%?
5. What is the impact of an increase in purchasing costs on the margin rate?
Proposed correction:
1. The margin rate is calculated as follows: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100) or ((€40 – €20) ÷ €20) x 100 = 100%
2. For a margin rate of 75%, the new sales price must be calculated as follows: PA HT x [(Margin rate / 100) + 1] or: 20 x [(75 / 100) +1] = €35
3. If the purchase cost excluding tax increases by 10% to €22 and the sale price remains the same, the margin rate would be: ((€40 – €22) ÷ €22) x 100 = 81,82%
4. To obtain a profit of €1 at a margin rate of 000% and a net operating profit of €75, it is necessary to: Profit = margin rate x net operating profit x number of units sold, therefore €22 = 1/000 x €75 x number of units. We find that the number of units = €100 ÷ (22% × €1) = 000, therefore approximately 15 fishing rods.
5. An increase in purchasing costs would generally reduce the margin rate unless the selling price was increased proportionately. However, such a strategy could prove counterproductive if it resulted in a decrease in quantities sold.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| Margin rate = (PV HT – PA HT) ÷ PA HT x 100 | Margin rate. It is used to calculate how much the seller earns as a percentage of the purchase cost excluding tax (PA HT) that he incurred to obtain the resold good. PV designates the sale price excluding tax. |
| PV HT = PA HT x [(Margin rate / 100) + 1] | Calculation of the new sales price excluding tax to achieve a desired margin rate. |
| Quantity sold = Profit ÷ (Margin rate x PA excluding tax) | Calculation of the quantities to be sold to achieve a specific profit, taking into account a margin rate and a purchase cost. |
Application: Le Petit Marchand Company
States :
The company Le Petit Marchand has hired you as a financial management consultant. They sell a product with a purchase price excluding tax (PA HT) of €100 per unit and a sales price excluding tax (PV HT) of €150. They sold 200 units of this product this month.
Work to do :
1) Calculate the unit margin.
2) Calculate the margin rate.
3) Calculate how many units of this product the company must sell to obtain an overall margin of €10.
4) If the purchase price excluding tax increases to €120, what will this change in the margin rate?
5) If the company wants to maintain the same margin rate as in the previous example (50%), how should it readjust its selling price?
Proposed correction:
1) The unit margin is calculated by subtracting the purchase price excluding tax from the sale price excluding tax: €150 – €100 = €50.
2) The margin rate is calculated using the formula ((PV HT – PA HT) ÷ PA HT) x 100. By filling in this formula, we obtain ((150 € – 100 €) ÷ 100 €) x 100 = 50%.
3) The desired overall margin is €10. Since the unit margin is €000, the company must sell €50 ÷ €10 = 000 units to achieve this overall margin.
4) If the purchase price excluding taxes increases to €120, then the margin rate would be ((€150 – €120) ÷ €120) x 100 = 25%. The increase in the purchase price would therefore reduce the margin rate.
5) Maintaining the same 50% margin rate would require an adjustment to the sales price. Let's use the formula: PV HT = PA HT x (1 + Margin rate / 100). Let's replace in this formula: PV HT = €120 x (1 + 50 / 100) = €180. The company would therefore have to readjust its sales price to €180 to maintain a 50% margin rate.
Summary of Formulas Used:
In this exercise we used the following formulas:
| Formulas | Description |
|---|---|
| Unit margin | PV HT – PA HT |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Quantity sold required to achieve a desired overall margin | Desired overall margin ÷ Unit margin |
| Readjustment of the selling price to maintain the margin rate | PA HT x (1 + Margin rate / 100) |
Application: TechnoSmart Company
States :
TechnoSmart Company is a business specializing in the sale of electronic products. It buys smartphones at €200 excluding VAT each and sells them at €300 excluding VAT. The company sold 100 of these smartphones during the last quarter. The VAT rate applied is 20%.
Work to do :
1. Calculate TechnoSmart Company's unit margin on each smartphone sold.
2. Calculate the overall margin for the last quarter.
3. Calculate the margin rate on each smartphone sold.
4. How do you interpret this margin rate?
5. TechnoSmart Company aims to increase its margin rate by 10 points. What should be the new selling price excluding VAT of each smartphone to achieve this objective?
Proposed correction:
1. The unit margin is calculated by subtracting the purchase price excluding VAT from the sale price excluding VAT. For TechnoSmart Company, the unit margin is therefore €300 excluding VAT – €200 excluding VAT = €100 excluding VAT.
2. The overall margin is calculated by multiplying the unit margin by the quantity of products sold. For TechnoSmart Company, the overall margin for the last quarter is therefore €100 excluding tax x 100 = €10.
3. The margin rate is calculated by subtracting the pre-tax purchase price from the pre-tax sale price, then dividing the result by the pre-tax purchase price.
The whole thing is then multiplied by 100 to express it as a percentage.
For TechnoSmart Company, the margin rate is therefore ((€300 excluding tax – €200 excluding tax) ÷ €200 excluding tax) x 100 = 50%.
4. A margin rate of 50% means that each time TechnoSmart Company sells a smartphone, it makes a margin equivalent to 50% of its purchase price excluding tax.
The higher the margin rate, the more profitable the product is for the company.
5. To increase its margin rate by 10 points, TechnoSmart Company must increase its selling price. We use the formula for the margin rate, but this time we seek to increase it by 10 points, or 60%.
We therefore transform it into:
PA HT = (PV HT – PA HT) ÷ 0,60
We now isolate PV HT:
PV HT = 0,60 x PA HT + PA HT
And we replace PA HT with the current purchase price of €200 HT:
PV excluding VAT = 0,60 x 200€ excluding VAT + 200€ excluding VAT
PV HT = 120€ + 200€ HT
PV HT = 320€ HT
To achieve its objective of a 10-point increase in the margin rate, TechnoSmart Company would therefore have to sell each smartphone at a sale price of €320 excluding VAT.
Summary of Formulas Used:
| Packages | Description |
|---|---|
| VAT rate = 20% | 5,5% | This rate is applied to the price excluding VAT to obtain the VAT amount. |
| Overall margin = Unit margin x quantities sold | The unit margin is obtained by subtracting the purchase cost of a product from its selling price excluding tax. This unit margin is then multiplied by the quantity of products sold to obtain the overall margin. |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100) | The margin rate is an indicator that allows you to evaluate the profitability of a product. It is expressed as a percentage. |
| Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100) | Another indicator of profitability is the markup rate. It is also expressed as a percentage. |
Application: Fashion Hour Fashion Store
States :
The Fashion Hour fashion boutique, managed by Madame Bénédicte, has a multitude of clothes and fashion accessories. For optimal management of her boutique, Madame Bénédicte rigorously monitors her margins and sales.
Among the items sold was a designer handbag with a purchase price excluding tax (PP excluding tax) of €100 and which was sold at a sale price excluding tax (SRP excluding tax) of €220.
To boost her sales, she is considering offering a 10% discount on the tax-free selling price, but she first wants to know what impact this could have on the margin rate.
Work to do :
1. What is the current handbag margin rate?
2. If a 10% discount is made on the handbag, what will be the new sales price excluding tax (SRP HT)?
3. What will be the new margin rate if this reduction is applied?
4. How many more items would need to be sold to maintain the same overall margin?
5. Comment on the results obtained.
Proposed correction:
1. The margin rate is calculated using the formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100). So here, the Margin rate = ((€220 – €100) ÷ €100) x 100 = 120%.
2. A 10% reduction on the PV HT means that the new PV HT will be: €220 – (10% of €220) = €220 – €22 = €198.
3. With this new PV HT, the margin rate will be: Margin rate = ((198 € – 100 €) ÷ 100 €) x 100 = 98%.
4. The current overall margin for a bag sold is €120 (PV excluding VAT – PA excluding VAT). With the reduction, the unit margin increases to €98. To maintain the same overall margin, it will therefore be necessary to sell: €120 ÷ €98 = 1,22, i.e. approximately 2 additional items (we always round up to the next unit in management).
5. Applying a price reduction results in a lower margin rate and requires increasing the sales volume to maintain the same overall margin. Mrs. Bénédicte must therefore take these elements into account to decide whether this strategy is profitable.
Summary of Formulas Used:
| Entitled | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Reduction of PV HT | PV HT – (reduction rate x PV HT) |
Application: The Gourmet Pastry Company
States :
La Pâtisserie Gourmande is a company that has enjoyed great success in the market. Your mission is to calculate the margin rate and the mark-up rate of the products sold. The following data has been extracted from the accounting books:
The purchase price excluding tax (PA HT) of a unit of cake is €4.
This company sells these cakes at a sales price excluding tax (SRP) of €6. The company has sold a total of 2000 units of cakes.
Work to do :
1. Calculate the unit margin excluding tax for each cake.
2. Calculate the overall margin for all cakes sold.
3. Calculate the margin rate for all the cakes.
4. Calculate the mark rate.
5. What does the margin rate represent and what can we conclude in this context?
Proposed correction:
1. The unit margin excluding tax is the selling price excluding tax minus the purchase price excluding tax.
Unit margin excluding tax = PV excluding tax – PA excluding tax = €6 – €4 = €2.
2. The overall margin is the unit margin multiplied by the quantity sold.
Overall margin = Unit margin x quantity sold = €2 x 2000 = €4000.
3. The margin rate is the ratio between the margin (PV HT – PA HT) and the purchase price HT. It is multiplied by 100 to obtain a percentage.
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((6 € – 4 €) ÷ 4 €) x 100 = 50%.
4. The markup rate is the ratio between the margin (PV excluding VAT – PA excluding VAT) and the selling price excluding VAT. It is also multiplied by 100 to obtain a percentage.
Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((6 € – 4 €) ÷ 6 €) x 100 = 33,33%.
5. The profit margin is a measure of the profitability of the cake compared to its purchase cost. It indicates that for every euro spent on the purchase of cakes, the company makes a profit of €0,50.
Generally speaking, the higher the rate, the more profitable the product is for the company. In this case, with a margin rate of 50%, we can deduce that the company is making a good margin on the sale of cakes.
La Pâtisserie Gourmande generates an attractive overall margin on its total sales and has a fairly substantial margin rate, which demonstrates good management of its purchasing costs and sales prices.
However, it would be interesting to analyze other costs (indirect costs, salary costs, depreciation costs, etc.) to have a better understanding of their impact on the margin.
Summary of Formulas Used:
| Overall Margin | Overall margin = Unit margin x quantity sold |
|---|---|
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Fashion Store
States :
Fashion Store is a company specializing in the sale of high-end clothing. The following information was extracted from the company's accounting records for the month of December of last year:
– Purchase price excluding tax (PA HT) of jeans: €80
– Retail price excluding tax (PV HT) of jeans: €120
– Quantity of jeans sold: 150 units
Work to do :
1. Calculate the unit margin in euros for a pair of jeans.
2. Calculate the percentage margin rate for a pair of jeans.
3. Calculate the overall margin in euros for all jeans sold.
4. If the company wants to increase its margin rate to 60%, what should the new selling price excluding VAT be?
5. If the number of jeans sold increases to 200 units, what would be the new margin rate for jeans?
Proposed correction:
1. The unit margin is calculated by the difference between the selling price excluding VAT and the purchase price excluding VAT.
Unit margin = PV excluding tax – PA excluding tax
Unit margin = €120 – €80 = €40. For each pair of jeans sold, Fashion Store makes a margin of €40.
2. The margin rate is calculated by dividing the margin by the purchase price excluding tax and then multiplying by 100.
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€120 – €80) ÷ €80) x 100 = 50%. Fashion Store's margin rate for a pair of jeans is 50%.
3. The overall margin is calculated by multiplying the unit margin by the quantity sold.
Overall margin = Unit margin x quantity sold = €40 x 150 = €6005. The overall margin made by Fashion Store on the sale of jeans is €6000.
4. To find the new selling price excluding tax which would allow a margin rate of 60% to be obtained, we use the formula:
PV HT = (Margin rate x PA HT ÷ 100) + PA HT
New PV HT = (60% x €80 ÷ €100) + €80 = €128. In order to increase its margin rate to 60%, Fashion Store would have to sell each pair of jeans at €128 excluding VAT.
5. If the number of jeans sold increases to 200 units, this will not change the margin rate per jean. Indeed, the margin rate is calculated per jean and does not depend on the number of jeans sold. The rate therefore remains at 50%.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| Unit margin = PV excluding tax – PA excluding tax | Allows you to determine the unit margin in euros. |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Allows you to determine the margin rate as a percentage |
| Overall margin = Unit margin x quantity sold | Allows you to determine the overall margin in euros for all products sold. |
| PV HT = (Margin rate x PA HT ÷ 100) + PA HT | Allows you to determine the new selling price excluding tax to obtain a certain margin rate. |
Application: The Center Bookstore
States :
The Centre's bookstore sells a wide range of items from novels to textbooks, to movie and educational DVDs. The information below is for the novel entitled "Life is an Adventure":
– Purchase price excluding tax (Purchase price excluding tax): €8
– Selling price excluding tax (Selling price excluding tax): €16
– Quantity sold: 200
Work to do :
1. Determine the amount of margin made on the novel “Life is an Adventure”.
2. Calculate the margin rate on this same novel.
3. If the purchase price excluding VAT increases by 20%, what will the new margin rate be?
4. If the net selling price drops by 10%, what will the new margin rate be?
5. If the purchase price excluding VAT and the sale price excluding VAT both increase by 15%, what will the new margin rate be?
Proposed correction:
1. The unit margin is calculated by subtracting the purchase price excluding VAT from the sale price excluding VAT. Here, the margin is therefore €16 – €8 = €8.
2. The margin rate is obtained by dividing the unit margin by the purchase price excluding VAT, then multiplying the total by 100. Therefore ((€16 – €8) ÷ €8) x 100 = 100%.
3. If the purchase price excluding VAT increases by 20%, it becomes €8 x 1,2 = €9,6. The margin rate therefore becomes ((€16 – €9,6) ÷ €9,6) x 100 = 66,67%.
4. If the selling price excluding VAT drops by 10%, it becomes €16 x 0,9 = €14,4. The margin rate therefore becomes ((€14,4 – €8) ÷ €8) x 100 = 80%.
5. If the purchase price excluding VAT and the sale price excluding VAT both increase by 15%, they become €8 x 1,15 = €9,2 and €16 x 1,15 = €18,4 respectively. The margin rate therefore becomes ((€18,4 – €9,2) ÷ €9,2) x 100 = 100%.
Summary of Formulas Used:
| Entitled | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
Application: Golden Bakery
States :
La Boulangerie Dorée is a small business that produces a variety of bakery products including bread, pastries, cakes, etc. The business wants to analyze its performance and has identified some key products to review.
The bakery manager needs your help to calculate and understand the margin rate on some of her products based on the following data for the year 2020:
1. Baguette bread – Purchase price excluding tax (PA HT): €0,5 per unit, Sale price excluding tax (PV HT): €1 per unit, quantity sold: 20 units.
2. Croissant – PA HT: €0,3 per unit, PV HT: €0,9 per unit, quantity sold: 25 units.
3. Apple pie – HT PA: €2 per unit, HT PV: €6 per unit, quantity sold: 10 units.
Work to do :
1. Calculate the margin rate for each product.
2. Which product has the highest and lowest margin rate?
3. Carry out an interpretation of the margin rates calculated for each product.
4. Propose a strategy to increase the margin rate of the products.
5. If the pre-tax purchase price for the croissant increases by 10%, what is the impact on its margin rate?
Proposed correction:
1. Margin rate for each product:
– Baguette bread = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100) = ((1 € – 0,5 €) ÷ 0,5 €) x 100) = 100%
– Ascending = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100) = ((0,9 € – 0,3 €) ÷ 0,3 €) x 100) = 200%
– Apple pie = ((PV HT – PA HT) ÷ PA HT) x 100) = ((6 € – 2 €) ÷ 2 €) x 100) = 200%
2. The highest margin rate is for croissant and apple pie (200%), the lowest is for baguette (100%).
3. Croissants and apple pies have a higher margin than baguettes, which allows the company to generate more profits on sales of these products.
4. To increase the product margin rate, the company could either increase the selling price excluding VAT or reduce the purchasing price excluding VAT by working on the supply chain.
5. If the pre-tax purchase price for the croissant increases by 10%, the new pre-tax PA would be €0,33. The margin rate would then be: ((PV pre-tax – new pre-tax PA) ÷ new pre-tax PA) x 100) = ((€0,9 – €0,33) ÷ €0,33) x 100) = 172,73%. The margin therefore decreases with the increase in the purchase price.
Summary of Formulas Used:
IndicatorFormula
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100) |
Application: Gourmet Chocolaterie
States :
Chocolaterie Gourmet, a company known for its delicious chocolate treats, is analyzing its financial management. It sold 1000 units of a particular product this month. The purchase cost excluding tax of each unit is €5.20 and it sold each unit with a sales price excluding tax of €8.50.
Work to do :
1. Calculate the overall margin that Chocolaterie Gourmet made on its sales of this product for this month.
2. Calculate the margin rate of Chocolaterie Gourmet on this product.
3. Calculate the markup rate of Chocolaterie Gourmet on this product.
4. If the chocolate factory wants to increase its margin rate to 70%, at what selling price excluding tax should it sell each unit of product?
5. Evaluate the impact of such an increase in the selling price on the markup rate.
Proposed correction:
1. Overall margin = Unit margin x quantity sold = (€8.50 – €5.20) x 1000 = €3300.
The overall margin of Chocolaterie Gourmet for this product is then €3300 for this month.
2. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((8.50 € – 5.20 €) ÷ 5.20 €) x 100 = 63.46%.
The margin rate on this product is 63.46%.
3. Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((8.50 € – 5.20 €) ÷ 8.50 €) x 100 = 38.82%.
The markup rate on this product is 38.82%.
4. If the chocolate factory wants a margin rate of 70%, the new sales price excluding tax (SVP HT) must respect the formula: PA HT + (70% of PA HT) = €5.20 + (70% x €5.20) = €8.84.
The chocolate factory would have to sell each unit at a selling price excluding tax of €8.84 to achieve a margin rate of 70%.
5. With this new selling price excluding VAT, the markup rate would be ((€8.84 – €5.20) ÷ €8.84) x 100 = 41.18%.
The increase in the selling price would have an impact on the markup rate by increasing it to 41.18%.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| 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: Clothing store “Fashion Trend”
States :
You are the manager of the clothing store "Fashion Trend". The company sells branded clothing to consumers. You need to calculate the margin rate on some items sold in the store to assess the profitability of these products.
For a sweater, you have the following information:
– Purchase price excluding tax (PA HT): €20
– Sales price excluding tax (PV HT): €40
Work to do :
1. What is the profit made on the sale of the sweater tax free?
2. What is the margin rate on the sale of the sweater?
3. What does a 100% margin rate mean?
4. Is it possible to have a margin rate greater than 100%? Explain.
5. If the PV excluding tax of the sweater increased to €45, what would be the new margin rate?
Proposed correction:
1. The profit made on the sale of the sweater tax-free is €40 – €20 = €20.
2. The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100. So here, ((40 € – 20 €) ÷ 20 €) x 100 = 100%.
3. A margin rate of 100% means that the profit made is equal to the cost of purchasing the product. In other words, the sale of the product generated a profit that covered its purchase cost in full.
4. Yes, it is possible to have a margin rate greater than 100%. This means that the profit made is more than the cost of purchasing the product. This is typically the case when a product is sold for much more than its purchase cost.
5. If the sweater's net sales price increased to €45, the new margin rate would be: ((€45 – €20) ÷ €20) x 100 = 125%.
Summary of Formulas Used:
| Packages | Calculs |
|---|---|
| Profit = PV HT – PA HT | Profit = €40 – €20 = €20 |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Margin rate = ((€40 – €20) ÷ €20) x 100 = 100% |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Margin rate = ((€45 – €20) ÷ €20) x 100 = 125% |
Application: Mediverts SAS
Mediverts SAS is a distributor of medical products. The company buys and sells different types of products, medical equipment, laboratory supplies, medicines, etc.
States :
Mediverts SAS has recently introduced a new product into its portfolio, a medical analysis machine. The unit purchase cost excluding VAT (HT) of this product for Mediverts SAS is €2. The company sells this equipment at a price of €000 excluding VAT/unit.
To promote the product, the company is considering offering discounts on the machine and would like to analyze the financial impact of these discounts.
Work to do :
1. Calculate the margin rate on the pre-tax purchase cost of the company Mediverts SAS for this product.
2. If the company decides to offer a 10% discount on the selling price, how will this affect the margin rate?
3. By how much would the unit purchase cost have to be reduced to maintain the current margin rate with the proposed price reduction?
4. How would the margin rate change if the company decided to increase the selling price by €200 while offering a 5% discount?
5. What would be the margin rate if the selling price was reduced by €250, but the cost of the purchase was also reduced by 10%?
Proposed correction:
1. The margin rate is calculated using the formula: ((Selling price excluding VAT – Purchase price excluding VAT) ÷ Purchase price excluding VAT) x 100
The margin rate is therefore: ((€2 – €800) ÷ €2) x 000 = 2%
2. If a 10% discount is offered on the sale price, the new sale price would be €2 – (800% of €10) = €2. Thus, the new margin rate would be: ((€800 – €2) ÷ €520) x 2 = 520%.
3. To maintain the initial margin rate of 40% with the sale price reduced to €2, the purchase price should be: Sale price excluding tax / (520 + (Margin Rate / 1)) = €100 / (2 + (520 / 1)) = €40.
4. If the company increases the selling price by €200 and then offers a 5% discount, the new selling price will be (€2 + €800) – (200% x (€5 + €2)) = €800. Thus, the new margin rate would be: ((€200 – €2) ÷ €850) x 2 = 850%.
5. If the selling price is reduced by €250, and the cost of purchase is also reduced by 10%, the new selling price would be €2 and the new cost of purchase would be: €550 – (2% x €000) = €10. The new margin rate would therefore be: ((€2 – €000) ÷ €1) x 800 = 2%.
Summary of Formulas Used:
ConceptFormula
| Margin rate | ((Selling price excluding tax – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100 |
| New sale price with discount | Selling price excluding VAT – (Percentage discount x Selling price excluding VAT) |
| New purchase cost to maintain margin rate | Selling price excluding VAT / (1 + (Margin rate/100)) |
| New sale price with price increase and discount | (Sales price excluding VAT + Price increase) – (Percentage reduction x (Sales price excluding VAT + Price increase)) |
| New purchase cost with discount | Purchase price excluding VAT – (Percentage discount x Purchase price excluding VAT) |