How-to-calculate-margin-call

How to Calculate Margin Call | 9 Exercises

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Application: Green Market

States :

Marché Vert is a company specializing in the distribution of organic products. Due to significant market fluctuations, it must regularly evaluate its margin management policy in order to maintain its profitability. Financial managers seek to understand the impact of these changes on profit margins.

Work to do :

  1. Determine the unit margin of Marché Vert if the purchase price excluding tax is €8 and the sale price excluding tax is €10.
  2. Calculate the margin rate on the proposed product.
  3. If Marché Vert sells 1 units, what is its overall margin?
  4. Taking into account a VAT of 5,5% on this product, what is the sales price including VAT?
  5. Discuss the possible strategic implications for Marché Vert if it increases its net selling price by 15%.

Proposed correction:

  1. The unit margin is calculated by subtracting the purchase price excluding VAT from the sale price excluding VAT:
    Unit margin = PV excluding tax – PA excluding tax = €10 – €8 = €2.
    So the unit margin is €2.

  2. To calculate the margin rate, use the formula:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((10 – 8) ÷ 8) x 100 = 25%.
    The margin rate is 25%.

  3. The overall margin is determined by multiplying the unit margin by the quantity sold:

Overall margin = Unit margin x Quantity sold = €2 x 1 = €000.
Marché Vert therefore achieves an overall margin of €2.

  1. To determine the sales price including VAT, add the VAT to the sales price excluding VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €10 x (1 + 0,055) = €10,55.
    The sales price including tax is therefore €10,55 per unit.

  2. A 15% increase in the net selling price implies a strategic review. The new net selling price would be:
    New PV HT = PV HT x (1 + 0,15) = €10 x 1,15 = €11,50.
    This increase could improve the margin but could also reduce demand if customers are not willing to pay a higher price. The company must therefore assess the price elasticity of demand to make an informed decision.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: TechInnovation

States :

TechInnovation, a company specializing in technological gadgets, is planning to introduce a new product. Currently, the purchase price of this product is €25 excluding VAT, and it is projected to be sold at €40 excluding VAT. Management needs to understand the margin structure to optimize the pricing strategy.

Work to do :

  1. Calculate the unit margin for this product at TechInnovation.
  2. What would be the markup rate on this product?
  3. If 500 units of this product are planned to be sold, what will the overall margin be?
  4. What effect on the sales price including tax if the VAT rate is set at 20%?
  5. What could be a strategic decision if the purchase price increases by €5?

Proposed correction:

  1. The unit margin is obtained by performing the following calculation:
    Unit margin = PV excluding tax – PA excluding tax = €40 – €25 = €15.
    So the unit margin is €15.

  2. The markup rate is calculated as follows:
    Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((40 – 25) ÷ 40) x 100 = 37,5%.
    The markup rate is 37,5%.

  3. The overall margin is obtained by:

Overall margin = Unit margin x Quantity sold = €15 x 500 = €7.
The overall expected margin is €7.

  1. To find out the sales price including VAT at 20%, do this calculation:
    Selling price including tax = PV excluding tax x (1 + VAT) = €40 x 1,20 = €48.
    The sales price including tax will be €48.

  2. If the purchase price increases by €5, the unit margin is affected:
    New PA HT = PA HT + 5 € = 25 € + 5 € = 30 €.
    New unit margin = PV excluding tax – New PA excluding tax = €40 – €30 = €10.
    TechInnovation could consider either increasing the selling price to maintain its margin or accepting a reduced margin in order to remain competitive. The decision will have to take into account customer expectations and competition.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Moda Crafts

States :

Artisanat Moda is a small business specializing in the manufacture of handcrafted jewelry. To optimize its profitability, it wants to analyze the selling price and margins of its star products. Currently, a bracelet is purchased at €15 excluding tax and sold at €30 excluding tax. Artisanat Moda wants to better understand its profitability.

Work to do :

  1. Determine the unit margin made on each bracelet sold.
  2. Calculate the margin rate applied by the company.
  3. If Artisanat Moda sells 200 bracelets, what will the overall margin be?
  4. What is the sales price including tax with a VAT of 5,5%?
  5. Analyze the impact on margins if the company reduces its selling price excluding tax by 10% to be more competitive.

Proposed correction:

  1. The unit margin for a bracelet is:
    Unit margin = PV excluding tax – PA excluding tax = €30 – €15 = €15.
    So the unit margin is €15 per bracelet.

  2. The margin rate is calculated as follows:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((30 – 15) ÷ 15) x 100 = 100%.
    The margin rate is 100%.

  3. To determine the overall margin, use:

Overall margin = Unit margin x Quantity sold = €15 x 200 = €3.
The overall margin is €3 for the 000 bracelets.

  1. To calculate the sales price including VAT, apply the VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €30 x 1,055 = €31,65.
    The sales price including tax is therefore €31,65.

  2. If the net selling price is reduced by 10%, this directly impacts the unit margin:
    New PV HT = PV HT x (1 – 0,10) = €30 x 0,90 = €27.
    New unit margin = New PV excluding tax – PA excluding tax = €27 – €15 = €12.
    Although this reduces the unit margin to €12, it could potentially increase sales volume by making the product more attractive. Artisanat Moda must evaluate the possible effect of such a decision in terms of additional sales volume.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: SantéBio

States :

SantéBio develops and distributes natural food supplements. The company wants to redefine its pricing strategy following recent increases in production costs. Currently, the purchase price excluding tax of a bottle is €12 and it is sold at €20 excluding tax.

Work to do :

  1. Calculate the unit margin for each bottle of dietary supplement.
  2. Determine the markup rate practiced by SantéBio.
  3. What is the overall margin if the company sells 150 bottles?
  4. What is the sales price including tax with a VAT rate of 5,5%?
  5. If SantéBio decides to increase its selling price excluding tax by 20%, what could the strategic implications be?

Proposed correction:

  1. To obtain the unit margin:
    Unit margin = PV excluding tax – PA excluding tax = €20 – €12 = €8.
    The unit margin is €8 per bottle.

  2. The calculation of the markup rate is carried out as follows:
    Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((20 – 12) ÷ 20) x 100 = 40%.
    The markup rate is therefore 40%.

  3. For the overall margin, perform the calculation:

Overall margin = Unit margin x Quantity sold = €8 x 150 = €1.
The overall margin is €1 for the 200 bottles.

  1. The calculation of the sales price including tax must include VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €20 x 1,055 = €21,10.
    So, the sales price including tax is €21,10.

  2. A 20% increase in the net selling price can have the following effects:
    New PV HT = PV HT x (1 + 0,20) = €20 x 1,20 = €24.
    The new unit margin would be €12 (€24 – €12). This could significantly increase unit profits, but there is a potential risk of decreased demand if customers find the new price too high. It would be wise to analyze customer purchasing behavior and competitors' offerings to properly evaluate this decision.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Ethical Fashion

States :

Mode Éthique is a clothing brand committed to sustainable development. To reduce its environmental impacts while remaining competitive, it must adjust its cost model and profit margins. Each shirt is purchased at €18 excluding VAT and sold at €45 excluding VAT.

Work to do :

  1. Calculate the unit margin on each shirt sold.
  2. What is the margin rate of Ethical Fashion?
  3. If 350 shirts are sold, what will the overall margin be?
  4. If VAT is applied at 5,5%, what is the sales price including VAT?
  5. Discuss the potential strategy if Mode Éthique wants to double its sales by reducing its selling price excluding VAT by 20%.

Proposed correction:

  1. The unit margin for each shirt is calculated as follows:
    Unit margin = PV excluding tax – PA excluding tax = €45 – €18 = €27.
    The unit margin is therefore €27 per shirt.

  2. To calculate the margin rate, use the following formula:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((45 – 18) ÷ 18) x 100 = 150%.
    Which means the margin rate is 150%.

  3. For the overall margin, use this calculation:

Overall margin = Unit margin x Quantity sold = €27 x 350 = €9.
The overall margin is therefore €9 for the 450 shirts sold.

  1. To calculate the sales price including tax:
    Selling price including tax = PV excluding tax x (1 + VAT) = €45 x 1,055 = €47,48.
    So, the sales price including tax is €47,48.

  2. Ethical Fashion could consider reducing its selling price excluding VAT to stimulate sales. Let's see the impact:
    New PV HT = PV HT x (1 – 0,20) = €45 x 0,80 = €36.
    Although this reduction to €36 adjusts the unit margin to €18 (€36 – €18), it could effectively double sales thanks to a more competitive price. Mode Éthique must however assess whether the increase in volumes will compensate for the decrease in the unit margin and whether production capacities can keep up.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Gourmet Delights

States :

Délices Gourmets is a delicatessen offering exceptional quality products. Faced with the inflation of food costs, it must readjust its prices to maintain its margins. Currently, a jar of jam is purchased at €3 excluding VAT and sold at €7 excluding VAT.

Work to do :

  1. What is the unit margin made on each jar of jam?
  2. Determine the markup rate on this product.
  3. If Délices Gourmets sells 500 jars, calculate the overall margin.
  4. What is the sales price including tax with a VAT rate of 5,5%?
  5. Analyze the strategic impact if Délices Gourmets reduces its selling price excluding tax by 15% to increase its market share.

Proposed correction:

  1. Perform the following calculation to determine the unit margin:
    Unit margin = PV excluding tax – PA excluding tax = €7 – €3 = €4.
    The unit margin is therefore €4 per pot.

  2. To find the markup rate:
    Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((7 – 3) ÷ 7) x 100 = 57,14%.
    The markup rate is therefore 57,14%.

  3. The overall margin is obtained by:

Overall margin = Unit margin x Quantity sold = €4 x 500 = €2.
The overall margin for 500 pots sold is €2.

  1. For the sales price including VAT, include VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €7 x 1,055 = €7,39.
    The sales price including VAT is €7,39.

  2. If the selling price excluding VAT is reduced by 15%, this can influence the market share:
    New PV HT = PV HT x (1 – 0,15) = €7 x 0,85 = €5,95.
    New unit margin = €5,95 – €3 = €2,95.
    Although the unit margin decreases to €2,95, this could increase demand and increase volumes sold thanks to a more attractive price. Délices Gourmets should carefully evaluate market reactions before making this decision.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Fast Computing

States :

Informatique Rapide, a supplier of computer accessories, decides to launch a new mechanical keyboard. The purchase price excluding tax of this keyboard is €50 and it is sold at €80 excluding tax. In order to ensure sustainable competitiveness, the company wishes to review its margin structure and pricing.

Work to do :

  1. Calculate the unit margin on each keyboard sold.
  2. What is the corresponding margin rate?
  3. For a sale of 300 keyboards, determine the overall margin.
  4. If 20% VAT is applicable, what is the sales price including VAT?
  5. If the purchase price increases by 10%, what impact could this have on the pricing strategy?

Proposed correction:

  1. The unit margin is calculated as follows:
    Unit margin = PV excluding tax – PA excluding tax = €80 – €50 = €30.
    The unit margin is €30 per keyboard.

  2. The margin rate is given by:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((80 – 50) ÷ 50) x 100 = 60%.
    The margin rate is therefore 60%.

  3. Use this calculation for the overall margin:

Overall margin = Unit margin x Quantity sold = €30 x 300 = €9.
The overall margin for 300 keyboards is €9.

  1. To determine the sales price including VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €80 x 1,20 = €96.
    The sales price including tax therefore amounts to €96.

  2. If the purchase price increases by 10%, this affects the margin:
    New PA HT = PA HT x (1 + 0,10) = €50 x 1,10 = €55.
    New unit margin = PV excluding tax – New PA excluding tax = €80 – €55 = €25.
    Rapid Computing could either absorb the reduction in unit margin or partially or fully pass on the cost increase to the selling price to maintain the margin. A study of the competition and the price sensitivity of customers would be necessary to guide this decision.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Futuristic School

States :

École Futuriste, a company offering online training, wants to expand its offering with a new course. The development of this course costs €1 excluding VAT per unit, and it is sold at €200 excluding VAT. The management team must optimize prices and margins to ensure the success of the launch.

Work to do :

  1. Determine the unit margin for each course sold.
  2. What would be the markup rate on this course?
  3. What is the overall margin if École Futuriste sells 40 courses?
  4. Calculate the sales price including tax by applying 20% ​​VAT.
  5. What strategic measures should be considered if École Futuriste reduced the selling price excluding tax by 25% to attract more students?

Proposed correction:

  1. The unit margin is calculated as follows:
    Unit margin = PV excluding tax – PA excluding tax = €2 – €000 = €1.
    Therefore, the unit margin achieved per course is €800.

  2. The markup rate is obtained by this formula:
    Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 = ((2 – 000) ÷ 1) x 200 = 2%.
    The markup rate on the course is 40%.

  3. For the overall margin, perform the calculation:

Overall margin = Unit margin x Quantity sold = €800 x 40 = €32.
The overall margin is therefore €32 for 000 courses sold.

  1. Determine the sales price including VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €2 x 000 = €1,20.
    The sales price including tax is therefore €2.

  2. If École Futuriste plans to reduce its selling price excluding tax by 25%, this will significantly impact margins:
    New PV HT = PV HT x (1 – 0,25) = €2 x 000 = €0,75.
    New unit margin = €1 – €500 = €1.
    Although the unit margin will narrow, the additional interest generated by the reduced price could be offset by increased sales volume. The strategy should be based on careful market analysis to assess potential gains in market share and by studying the competition.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

Application: Startup Techies

States :

Startup Techies develops innovative mobile applications and wants to estimate how cost adjustments will affect its margins. Each application is developed at a cost of €1 excluding VAT, and it is sold at €000 excluding VAT on the market. The company needs to assess the potential effects of price and cost fluctuations.

Work to do :

  1. Calculate the unit margin made on each application sold.
  2. What is the associated margin rate?
  3. Determine the overall margin for selling 25 apps.
  4. With a VAT of 5,5%, what is the sales price including VAT of an application?
  5. Explore the implications if Startup Techies reduces the cost of production by 10% while maintaining the current selling price.

Proposed correction:

  1. The unit margin per application is calculated as follows:
    Unit margin = PV excluding tax – PA excluding tax = €3 – €000 = €1.
    So the unit margin is €2 per application.

  2. To determine the margin rate, use this formula:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((3 – 000) ÷ 1) x 000 = 1%.
    The margin rate is 200%.

  3. For the overall margin, here is the calculation:

Overall margin = Unit margin x Quantity sold = €2 x 000 = €25.
The overall margin is therefore €50 for 000 applications sold.

  1. To find out the sales price including VAT:
    Selling price including tax = PV excluding tax x (1 + VAT) = €3 x 000 = €1,055.
    The sales price including tax for an application is €3.

  2. If the production cost is reduced by 10%, this impacts the unit margin:
    New PA HT = PA HT x (1 – 0,10) = €1 x 000 = €0,90.
    New unit margin = PV excluding tax – New PA excluding tax = €3 – €000 = €900.
    Cost reduction increases the unit margin to €2, strengthening profitability without changing the selling price. Startup Techies could reinvest these additional margins in technology development or in aggressive sales strategies to dominate the market.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall margin Unit margin x Quantity sold
Sales price including tax PV HT x (1 + VAT)

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