In this section:
Application: ChaussLuxe
States :
ChaussLuxe is a company specializing in the sale of high-end shoes. To optimize its strategic decisions, it wants to understand the structure of its margins in relation to its turnover. To this end, the company has the following data for the last month:
- Turnover excluding tax: €150
- Total purchase price excluding VAT: €90
- Quantity sold: 1 pairs
Work to do :
- Calculate the overall margin of the company.
- What is the unit margin per pair of shoes?
- Determine the margin rate.
- Calculate the average unit selling price excluding VAT.
- Analyze the possible impact if the purchase price increases by 10%.
Proposed correction:
-
Overall margin:
The overall margin is calculated by subtracting the total purchase price excluding tax from the turnover excluding tax.
Total margin = €150 – €000 = €90
Thus, ChaussLuxe's overall margin for the last month is €60. -
Unit margin:
The unit margin is calculated by dividing the overall margin by the quantity sold.
Unit margin = €60 ÷ €000 = €1
The unit margin for each pair of shoes sold is therefore €50. -
Margin rate:
The margin rate is calculated using the following formula:
((Sales figure excluding VAT – Total purchase price excluding VAT) ÷ Total purchase price excluding VAT) x 100
= ((€150 – €000) ÷ €90) x 000 = 90%
The ChaussLuxe margin rate is therefore 66,67%.
-
Average unit selling price excluding VAT:
This price is calculated by dividing the net sales figure by the quantity sold.
Average unit selling price excluding tax = €150 ÷ €000 = €1
Each pair of shoes is sold, on average, at €125 excluding VAT. -
Impact of an increase in the purchase price:
If the purchase price increases by 10%, the new total purchase price excluding VAT will be €90 x 000 = €1,10.
New overall margin = €150 – €000 = €99
The 10% increase in the purchase price would reduce the overall margin to €51, directly impacting profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Overall margin | Sales excluding tax – Total purchase price excluding tax |
| Unit margin | Overall margin ÷ Quantity sold |
| Margin rate | ((Sales figure excluding VAT – Total purchase price excluding VAT) ÷ Total purchase price excluding VAT) x 100 |
| Average unit selling price excluding VAT | Sales excluding tax ÷ Quantity sold |
Application: Gusto Gourmet
States :
Gusto Gourmet is an Italian restaurant that wants to evaluate its monthly financial performance. For the month of May, the restaurant had a net sales of €200 and spent €000 on ingredient costs. Gusto Gourmet served 130 meals during that month.
Work to do :
- Calculate the net margin for the month of May.
- What is the net margin per meal served?
- Determine the markup rate.
- Calculate the average cost of ingredients per meal.
- Discuss the implications of a 5% reduction in ingredient costs.
Proposed correction:
-
Net margin :
Net margin is calculated by subtracting the cost of ingredients from net sales.
Net margin = €200 – €000 = €130
Thus, Gusto Gourmet's net margin for May is €70. -
Net margin per meal:
Net margin per meal is obtained by dividing the net margin by the number of meals served.
Net margin per meal = €70 ÷ €000 = €4
Each meal therefore generates a net margin of €17,50. -
Mark rate:
The markup rate is calculated as follows:
((Sales figure excluding VAT – Cost of ingredients) ÷ Sales figure excluding VAT) x 100
= ((€200 – €000) ÷ €130) x 000 = 200%
Gusto Gourmet has a brand rate of 35%.
-
Average cost of ingredients per meal:
This cost is calculated by dividing the total cost of ingredients by the number of meals served.
Average cost per meal = €130 ÷ €000 = €4
The average cost of ingredients per meal is €32,50. -
Impact of cost reduction:
By reducing ingredient costs by 5%, the new cost would be €130 x 000 = €0,95.
New net margin = €200 – €000 = €123
A 5% reduction in costs would increase the net margin to €76, thereby improving profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Net margin | Turnover excluding tax – Cost of ingredients |
| Net margin per meal | Net margin ÷ Number of meals served |
| Brand taxes | ((Sales figure excluding VAT – Cost of ingredients) ÷ Sales figure excluding VAT) x 100 |
| Average cost per meal | Total cost of ingredients ÷ Number of meals served |
Application: TechNova Solutions
States :
TechNova Solutions, an IT services company, is looking to analyze its profitability over a quarter. The net revenue for this period is €500, and the net operating expenses are €000. TechNova Solutions completed 350 missions during this quarter.
Work to do :
- Calculate the gross profit for the quarter.
- What is the gross profit per mission completed?
- Determine the cost margin rate.
- Calculate the average net turnover per mission.
- What would be the new benefit if the charges were reduced by 8%?
Proposed correction:
-
Gross profit:
Gross profit is obtained by subtracting operating expenses from net sales.
Gross profit = €500 – €000 = €350
Thus, the gross profit of TechNova Solutions is €150. -
Gross profit per mission:
It is calculated by dividing the gross profit by the number of missions completed.
Gross profit per mission = €150 ÷ €000 = €250
Each mission therefore generates a gross profit of €600. -
Cost margin rate:
Calculated as:
((Net turnover – Operating expenses) ÷ Operating expenses) x 100
= ((€500 – €000) ÷ €350) x 000 = 350%
The cost margin rate is 42,86%.
-
Average net turnover per mission:
This amount is calculated by dividing the net turnover by the number of missions.
Average turnover per mission = €500 ÷ 000 = €250
Each mission brings in, on average, a turnover excluding tax of €2. -
Reduction of charges:
If the charges decrease by 8%, the new amount of charges is €350 x 000 = €0,92.
New gross profit = €500 – €000 = €322
An 8% reduction in expenses would bring gross profit to €178, thereby improving financial performance.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit | Net turnover – Operating expenses |
| Gross profit per mission | Gross profit ÷ Number of missions |
| Cost margin rate | ((Net turnover – Operating expenses) ÷ Operating expenses) x 100 |
| Average net turnover per mission | Net turnover ÷ Number of missions |
Application: StylishTrend
States :
StyléTendance is a fashion retailer specializing in youth clothing. For a half-year, the company posted a turnover excluding tax of €300. Raw material expenses amounted to €000, and they sold 120 items.
Work to do :
- Determine the overall sales margin for the semester.
- What is the sales margin per item sold?
- Calculate the markup rate.
- What is the average selling price excluding VAT per item?
- Analyze the effects of a 10% reduction in raw material costs.
Proposed correction:
-
Overall commercial margin:
The commercial margin is calculated by subtracting the cost of raw materials from the net turnover.
Overall sales margin = €300 – €000 = €120
The overall commercial margin of StyléTendance is €180. -
Trade margin per item:
It is determined by dividing the overall sales margin by the quantity of items sold.
Sales margin per item = €180 ÷ €000 = €15
Each item sold generates a margin of €12. -
Mark rate:
Calculated as:
((Sales figure excluding VAT – Cost of raw materials) ÷ Sales figure excluding VAT) x 100
= ((€300 – €000) ÷ €120) x 000 = 300%
The brand rate of StyléTendance is 60%.
-
Average selling price excluding VAT per item:
It is calculated by dividing the net sales figure by the number of items sold.
Average selling price excluding tax per item = €300 ÷ €000 = €15
Each item is sold, on average, at €20 excluding VAT. -
Reduction in the cost of raw materials:
If the cost of raw materials decreases by 10%, the new cost is €120 x 000 = €0,90.
New commercial margin = €300 – €000 = €108
A 10% reduction would increase the sales margin to €192, which is favourable to the company.
Formulas Used:
| Title | Formulas |
|---|---|
| Overall trade margin | Turnover excluding tax – Cost of raw materials |
| Trade margin per item | Overall sales margin ÷ Number of items sold |
| Brand taxes | ((Sales figure excluding VAT – Cost of raw materials) ÷ Sales figure excluding VAT) x 100 |
| Average selling price excluding VAT per item | Net sales ÷ Number of items sold |
Application: BioBeauty
States :
BioBeauty, a company specializing in organic cosmetic products, wants to evaluate its annual performance. Its turnover excluding tax is €1, with production costs amounting to €000. In total, 000 products were sold during the year.
Work to do :
- Calculate the gross margin on the annual turnover.
- What is the gross margin per product sold?
- Determine the gross margin rate.
- What is the average selling price excluding tax per product?
- Discuss the potential effect of a 15% decrease in production costs.
Proposed correction:
-
Gross margin :
Gross margin = Net sales – Production costs
= €1 – €000 = €000
So the gross margin is €350 for the year. -
Gross margin by product:
Gross margin per product = Gross margin ÷ Number of products sold
= €350 ÷ 000 = €50
Each product sold brings a gross margin of €7. -
Gross margin rate:
Gross margin rate = ((Net sales – Production costs) ÷ Production costs) x 100
= ((€1 – €000) ÷ €000) x 650 = 000%
BioBeauty's gross margin rate is therefore 53,85%.
-
Average selling price excluding VAT per product:
Average selling price excluding tax per product = Turnover excluding tax ÷ Number of products sold
= €1 ÷ 000 = €000
The average selling price excluding tax per product is €20. -
Reduction of production costs:
If production costs fall by 15%, then the new cost = €650 x 000 = €0,85.
New gross margin = €1 – €000 = €000
A 15% reduction in production costs would increase the gross margin to €447, which is very beneficial for the company.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | Turnover excluding tax – Production costs |
| Gross margin by product | Gross margin ÷ Number of products sold |
| Gross margin rate | ((Net sales – Production costs) ÷ Production costs) x 100 |
| Average selling price excluding VAT per product | Net sales ÷ Number of products sold |
Application: EcoVoyages
States :
EcoVoyages, a company that organizes eco-friendly trips, is looking to assess the profitability of its last quarter. The turnover excluding tax was €1, while the expenses for organizing trips reached €500. The company sold 000 trips during this period.
Work to do :
- Determine the operating margin for the quarter.
- What is the operating margin per stay sold?
- Calculate the margin rate.
- What is the average net turnover per stay?
- Analyze the impact of a 5% increase in organizational expenses.
Proposed correction:
-
Operating margin:
Operating margin = Net turnover – Organizational expenses
= €1 – €500 = €000
The operating margin for this quarter is €300. -
Operating margin per stay:
Operating margin per stay = Operating margin ÷ Number of stays sold
= €300 ÷ 000 = €3
Each stay sold generates an operating margin of €100. -
Margin rate:
Margin rate = ((Excl. VAT turnover – Organizational expenses) ÷ Excl. VAT turnover) x 100
= ((€1 – €500) ÷ €000) x 1 = 200%
The EcoVoyages margin rate is 20%.
-
Average net turnover per stay:
Average net turnover per stay = Net turnover ÷ Number of stays sold
= €1 ÷ 500 = €000
Each stay sold generates, on average, a turnover excluding tax of €500. -
Increase in expenses:
If organizational expenses increase by 5%, the new expenses are €1 x 200 = €000.
New operating margin = €1 – €500 = €000
A 5% increase in expenses would reduce the operating margin to €240, which would reduce the company's profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Operating margin | Turnover excluding tax – Organizational expenses |
| Operating margin per stay | Operating margin ÷ Number of stays sold |
| Margin rate | ((Turnover excluding VAT – Organizational expenses) ÷ Turnover excluding VAT) x 100 |
| Average net turnover per stay | Net turnover ÷ Number of stays sold |
Application: SecureWare
States :
SecureWare, a provider of IT security solutions, wants to evaluate its annual financial results. The net turnover generated in one year is €3, while the total costs amount to €000. The company has completed 000 projects during the year.
Work to do :
- Calculate the operating profit for the year.
- What is the operating profit per project?
- Determine the rate of return.
- What is the average turnover excluding tax per project?
- What would happen if costs increased by 10%?
Proposed correction:
-
Operating profit:
Operating profit = Net sales – Total costs
= €3 – €000 = €000
SecureWare's operating profit is therefore €1 for the year. -
Operating profit by project:
Operating profit per project = Operating profit ÷ Number of projects
= €1 ÷ 000 = €000
Each project generates an operating profit of €10. -
Rate of return:
Profitability rate = ((Net sales – Total costs) ÷ Total costs) x 100
= ((€3 – €000) ÷ €000) x 2 = 000%
SecureWare's profitability rate is 50%.
-
Average turnover excluding tax per project:
Average turnover excluding tax per project = Turnover excluding tax ÷ Number of projects
= €3 ÷ 000 = €000
On average, each project generates a turnover excluding tax of €30. -
Increased costs:
If costs increase by 10%, the new costs would be €2 x 000 = €000.
New operating profit = €3 – €000 = €000
A 10% increase in costs would reduce operating profit to €800, negatively impacting financial performance.
Formulas Used:
| Title | Formulas |
|---|---|
| Operating profit | Turnover excluding VAT – Total costs |
| Operating profit by project | Operating profit ÷ Number of projects |
| Rate of return | ((Net sales – Total costs) ÷ Total costs) x 100 |
| Average turnover excluding tax per project | Net turnover ÷ Number of projects |
Application: GreenPet
States :
GreenPet, a company that sells natural pet products, is looking to analyze its half-year performance. The turnover excluding tax is €400, and the production costs are €000. The company sold 280 products.
Work to do :
- Calculate the contribution margin for the half-year.
- What is the gross unit margin per product?
- Determine the margin rate on variable costs.
- What is the average selling price excluding tax per product?
- Discuss the potential consequences if revenue increased by 15%.
Proposed correction:
-
Margin on variable costs:
Margin on variable costs = Net turnover – Production costs
= €400 – €000 = €280
The margin on variable costs is €120. -
Gross unit margin by product:
Gross unit margin = Margin on variable costs ÷ Number of products sold
= €120 ÷ 000 = €20
Each product sold generates a gross unit margin of €6. -
Margin rate on variable costs:
Margin rate on variable costs = ((Net sales – Production costs) ÷ Production costs) x 100
= ((€400 – €000) ÷ €280) x 000 = 280%
The margin rate on variable costs is 42,86%.
-
Average selling price excluding VAT per product:
Average selling price excluding tax per product = Turnover excluding tax ÷ Number of products sold
= €400 ÷ 000 = €20
The average selling price excluding tax per product is €20. -
Increase in turnover:
If turnover increased by 15%, the new turnover would be €400 x 000 = €1,15.
New margin on variable costs = €460 – €000 = €280
A 15% increase in turnover would bring the margin on variable costs to €180, beneficial for the growth of the company.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on variable costs | Turnover excluding tax – Production costs |
| Gross unit margin by product | Margin on variable costs ÷ Number of products sold |
| Margin rate on variable costs | ((Net sales – Production costs) ÷ Production costs) x 100 |
| Average selling price excluding VAT per product | Net sales ÷ Number of products sold |
Application: NaturePur
States :
NaturePur is a brand of organic food products. For an annual analysis, their turnover excluding tax was €2, with a purchase cost of €500. They sold 000 units during the year.
Work to do :
- Calculate the annual gross profit.
- How much is the gross profit per product sold?
- Determine the gross profit percentage.
- What is the average price excluding tax per product?
- Estimate the effect if the cost of purchases fell by 20%.
Proposed correction:
-
Annual gross profit:
Gross profit = Net sales – Purchase cost
= €2 – €500 = €000
The annual gross profit is €700. -
Gross profit by product:
Gross profit per product = Gross profit ÷ Number of products sold
= €700 ÷ 000 = €100
Each product sold generates a gross profit of €7. -
Gross profit percentage:
Gross profit percentage = ((Net sales – Purchase cost) ÷ Purchase cost) x 100
= ((€2 – €500) ÷ €000) x 1 = 800%
The gross profit percentage is 38,89%.
-
Average price excluding VAT per product:
Average price excluding tax per product = Turnover excluding tax ÷ Number of products sold
= €2 ÷ 500 = €000
The average price excluding tax per product is €25. -
Effect of lower costs:
If the purchase cost drops by 20%, the new cost is €1 x 800 = €000.
New gross profit = €2 – €500 = €000
A 20% decrease in the purchase cost would increase the gross profit to €1, which is very positive for NaturePur.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross profit | Sales excluding VAT – Purchase cost |
| Gross profit by product | Gross profit ÷ Number of products sold |
| Gross Profit Percentage | ((Excl. VAT turnover – Purchase cost) ÷ Purchase cost) x 100 |
| Average price excluding VAT per product | Net sales ÷ Number of products sold |