How-to-calculate-annual-margin

How to Calculate Annual Margin | 9 Exercises

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Application: Delicious Chocolates

States :

The company Chocolats Delicieux specializes in the production of high-end artisanal chocolates. It produces and sells four different types of bars. For this new year, the company is looking to better understand its profitability. You have the following data for the past year:

  • Tablets sold: 15 units
  • Unit sale price excluding VAT: €5
  • Unit purchase cost excluding tax: €3,50

Work to do :

  1. Calculate the unit margin for each tablet sold.
  2. Determine the overall margin achieved over the year.
  3. Calculate the company's margin rate.
  4. Calculate the markup rate of the tablets.
  5. Analyze the implications of these results for business strategy.

Proposed correction:

  1. The unit margin is calculated by subtracting the unit purchase cost excluding VAT from the unit selling price excluding VAT.
    Unit margin = PV HT – PA HT = €5 – €3,50 = €1,50
    The unit margin is €1,50 per tablet.

  2. To find the overall margin, multiply the unit margin by the total number of tablets sold.
    Overall margin = Unit margin x Quantity sold = €1,50 x 15 = €000
    The overall margin for the year is €22.

  3. The margin rate is calculated using the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€5 – €3,50) ÷ €3,50) x 100 = 42,86%
The company's margin rate is 42,86%.

  1. The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€5 – €3,50) ÷ €5) x 100 = 30%
    The markup rate of tablets is 30%.

  2. Analysis of these results shows that the company has a fairly high margin and profit rate, which reflects good profitability on each product sold. However, it will be necessary to ensure that sales volumes remain constant or increase to maintain this profitability.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: Urban Fashion

States :

Mode Urbain, a trendy clothing store, wants to optimize its sales by closely studying its annual margin. Here is the information you have for the previous year:

  • Number of pieces sold: 12
  • Average selling price excluding VAT: €40
  • Average purchase price excluding VAT: €27

Work to do :

  1. Calculate the average unit margin per garment sold.
  2. Determine the overall margin achieved during the year.
  3. Calculate the margin rate.
  4. Estimate the markup rate of clothing.
  5. Discuss possible actions to further improve profitability.

Proposed correction:

  1. The average unit margin per garment sold is calculated as follows:
    Unit margin = PV HT – PA HT = €40 – €27 = €13
    Each item of clothing sold generates an average unit margin of €13.

  2. The overall margin is obtained by multiplying the unit margin by the total number of pieces sold.
    Overall margin = Unit margin x Quantity sold = €13 x 12 = €000
    The overall margin achieved during the year is €156.

  3. The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€40 – €27) ÷ €27) x 100 = 48,15%
The margin rate achieved is 48,15%.

  1. To estimate the markup rate, the following formula is used: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€40 – €27) ÷ €40) x 100 = 32,5%
    The brand rate of clothing is estimated at 32,5%.

  2. The results indicate a good margin on each product, but it might be wise to negotiate lower purchasing costs with suppliers or consider increasing selling prices to boost profitability, while remaining competitive.

Formulas Used:

Title Formulas
Average unit margin PV HT – PA HT
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: Futuristic Electronics

States :

Futuristic Electronics, a company that makes innovative gadgets, wants to evaluate the annual profitability of its flagship product, the “Smart Gadget X.” The year’s data includes:

  • Number of gadgets sold: 8
  • Unit sale price excluding VAT: €220
  • Unit purchase price excluding VAT: €150

Work to do :

  1. Calculate the unit margin on each gadget sold.
  2. Determine the overall margin for the year.
  3. Calculate the company's margin rate for this product.
  4. Evaluate the markup rate applied to gadgets.
  5. Provide analysis on the company's differentiation strategy based on these margins.

Proposed correction:

  1. The unit margin is calculated using the difference between the selling price excluding VAT and the purchase price excluding VAT.
    Unit margin = PV HT – PA HT = €220 – €150 = €70
    The unit margin per gadget sold is €70.

  2. The overall margin can be calculated by multiplying the unit margin by the total number of gadgets sold.
    Overall margin = Unit margin x Quantity sold = €70 x 8 = €500
    The overall margin for the year is €595.

  3. Let's use the following formula for the margin rate: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€220 – €150) ÷ €150) x 100 = 46,67%
The margin rate achieved is 46,67%.

  1. The markup rate is determined by the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€220 – €150) ÷ €220) x 100 = 31,82%
    The applied markup rate is 31,82%.

  2. This data shows a strong unit margin, which indicates good product valuation through effective differentiation strategies. The company may consider continuing to invest in innovation and marketing to strengthen the brand image and increase sales.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: Elegance Jewelry

States :

Bijoux Élégance, a craft jewelry workshop, has sold various jewelry pieces over the past year. They are looking to calculate their annual profitability. The available data:

  • Jewelry sold: 500 units
  • Average selling price excluding VAT: €450
  • Average purchase cost excluding tax: €300

Work to do :

  1. Calculate the average unit margin per piece of jewelry sold.
  2. Determine the overall margin for the year.
  3. Calculate the margin rate.
  4. Estimate the markup rate of jewelry.
  5. What do you suggest to further boost the company's margins?

Proposed correction:

  1. The average unit margin is calculated by subtracting the pre-tax purchase price from the pre-tax selling price.
    Unit margin = PV HT – PA HT = €450 – €300 = €150
    The average unit margin per piece of jewelry is €150.

  2. The annual overall margin is obtained by multiplying the unit margin by the number of jewels sold.
    Overall margin = Unit margin x Quantity sold = €150 x 500 = €75
    The overall annual margin amounts to €75.

  3. The margin rate is given by the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€450 – €300) ÷ €300) x 100 = 50%
The margin rate is 50%.

  1. The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€450 – €300) ÷ €450) x 100 = 33,33%
    The markup rate of jewelry is 33,33%.

  2. To increase margin, the company could diversify its supply sources to reduce costs or implement a loyalty program to encourage repeat purchases. Strengthening its marketing strategy could also improve sales.

Formulas Used:

Title Formulas
Average unit margin PV HT – PA HT
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: Gourmet Pastry

States :

Pâtisserie Gourmande sells quality cakes in different points of sale. In order to improve their performance, they launch an audit of their annual margin. Here is the data collected:

  • Quantity of cakes sold: 10
  • Average selling price excluding VAT: €4
  • Unit production cost excluding tax: €2,50

Work to do :

  1. Calculate the unit margin per cake sold.
  2. Establish the overall annual margin of the pastry shop.
  3. Calculate the margin rate of the cakes.
  4. Evaluate the markup rate applied to cakes.
  5. Strategic suggestion to increase sales profitability.

Proposed correction:

  1. Let's calculate the unit margin per cake using the following formula:
    Unit margin = PV HT – PA HT = €4 – €2,50 = €1,50
    Each cake generates a unit margin of €1,50.

  2. To determine the overall margin, we multiply the unit margin by the total number of cakes sold:
    Overall margin = Unit margin x Quantity sold = €1,50 x 10 = €000
    The annual overall margin is €15.

  3. The margin rate is calculated as follows: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€4 – €2,50) ÷ €2,50) x 100 = 60%
The margin rate achieved is 60%.

  1. The markup rate is calculated using this formula: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€4 – €2,50) ÷ €4) x 100 = 37,5%
    The markup rate is 37,5%.

  2. An increase in profitability can be considered by optimizing production costs or by increasing distribution points to increase sales volume. Attractive marketing could also stimulate purchases.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: HighTech Innovations

States :

HighTech Innovations, a leader in wearable technology, is investigating the financial performance of its latest smartwatch. The year's figures are as follows:

  • Watches sold: 20 units
  • Unit sale price excluding VAT: €150
  • Unit manufacturing cost excluding tax: €95

Work to do :

  1. Calculate the unit margin of a watch sold.
  2. Determine the overall margin achieved.
  3. Calculate the margin rate applied to each watch.
  4. Evaluate the markup rate.
  5. Analyze the prospects for increasing market share by acting on margins.

Proposed correction:

  1. The unit margin can be calculated as follows:
    Unit margin = PV HT – PA HT = €150 – €95 = €55
    Each watch sold generates a unit margin of €55.

  2. The overall margin is obtained by multiplying the unit margin by the total number of watches sold.
    Overall margin = Unit margin x Quantity sold = €55 x 20 = €000
    The overall annual margin is €1.

  3. The margin rate is determined by the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€150 – €95) ÷ €95) x 100 = 57,89%
The margin rate is 57,89%.

  1. To evaluate the markup rate, we use the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€150 – €95) ÷ €150) x 100 = 36,67%
    The applied markup rate is 36,67%.

  2. To increase market share, reducing manufacturing costs or targeted promotions could boost sales without cutting margin too much. Maintaining high quality could also justify an attractive price, maximizing both margin and market share.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: Fitness Plus

States :

Fitness Plus, a company selling home gym equipment, wants to understand the margins on their treadmills. Available information includes:

  • Rugs sold: 1
  • Selling price excluding VAT: €800
  • Purchase price excluding VAT: €560

Work to do :

  1. Calculate the unit margin for each treadmill sold.
  2. Determine the overall margin on these sales.
  3. Calculate the margin rate applied to the carpets.
  4. Evaluate the markup rate.
  5. Offer a thought on how to improve financial results.

Proposed correction:

  1. The unit margin is calculated as follows:
    Unit margin = PV HT – PA HT = €800 – €560 = €240
    Each treadmill sold generates a unit margin of €240.

  2. The overall margin results from the product of the unit margin by the number of carpets sold.
    Overall margin = Unit margin x Quantity sold = €240 x 1 = €200
    The overall margin on sales is €288.

  3. The margin rate is established with the formula ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€800 – €560) ÷ €560) x 100 = 42,86%
The margin rate is therefore 42,86%.

  1. Let us evaluate the mark rate using the following method: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€800 – €560) ÷ €800) x 100 = 30%
    The markup rate is 30%.

  2. To improve financial results, Fitness Plus could explore interventions such as optimizing logistics costs, lowering purchase prices through supplier negotiations, or adding complementary services to justify a price increase.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: Artistic Stationery

States :

Artistic Stationery is a store specializing in the sale of high-end art supplies. In order to better guide their strategic decisions, they wish to analyze the profitability of the previous year concerning their brush sets. The data is as follows:

  • Number of sets sold: 2
  • Selling price excluding VAT: €50
  • Purchase cost excluding tax: €30

Work to do :

  1. Calculate the unit margin for each set of brushes.
  2. Establish the overall margin obtained.
  3. Calculate the margin rate on the brushes.
  4. Evaluate the markup rate.
  5. Discuss possible strategic improvements to increase profitability.

Proposed correction:

  1. Let's calculate the unit margin of each set:
    Unit margin = PV HT – PA HT = €50 – €30 = €20
    Each set of brushes generates a unit margin of €20.

  2. The overall margin is obtained by multiplying the unit margin by the total number of units sold.
    Overall margin = Unit margin x Quantity sold = €20 x 2 = €500
    The overall margin for the previous year is €50.

  3. The margin rate is calculated using the method: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€50 – €30) ÷ €30) x 100 = 66,67%
The margin rate achieved is 66,67%.

  1. Let us evaluate the mark rate according to ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€50 – €30) ÷ €50) x 100 = 40%
    The applied markup rate is 40%.

  2. To increase profitability, Papeterie Artistique could consider expanding its range of related products, negotiating better purchasing conditions, or creating partnerships for co-marketing, while focusing on customer experience and product exclusivity.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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: Soft Cosmetics

States :

Cosmétiques Douceur, a manufacturer of natural skincare products, wants to evaluate the margins generated by its gift sets during the year. They are looking to better understand the results from these sales to face increased competition. Here is the data provided:

  • Gift sets sold: 3
  • Selling price excluding VAT: €75
  • Production cost excluding tax: €45

Work to do :

  1. Calculate the unit margin per gift set sold.
  2. Determine the overall margin achieved during the year.
  3. Calculate the margin rate.
  4. Evaluate the markup rate.
  5. Formulate strategic recommendations aimed at optimizing profitability in the face of competition.

Proposed correction:

  1. The unit margin is calculated as follows:
    Unit margin = PV HT – PA HT = €75 – €45 = €30
    Each gift set sold brings a unit margin of €30.

  2. The annual overall margin is obtained by multiplying the unit margin by the total number of sets sold.
    Overall margin = Unit margin x Quantity sold = €30 x 3 = €000
    The overall margin generated during the year is €90.

  3. The margin rate is determined by: ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((€75 – €45) ÷ €45) x 100 = 66,67%
The margin rate is 66,67%.

  1. The markup rate is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
    Brand rate = ((€75 – €45) ÷ €75) x 100 = 40%
    The applied markup rate is 40%.

  2. Faced with increased competition, Cosmétiques Douceur may consider strengthening the perceived value of its gift sets through attractive and innovative designs, improving the customer experience, building loyalty through appropriate programs or introducing limited variants to capture new market segments, while maintaining strict control over costs.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
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

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