In this section:
Application: CordonBleu Restoration
States :
CordonBleu Restauration is a company specializing in the provision of school and corporate catering services. In order to adjust its business strategy, the CFO wants to assess the margin generated by the company from a certain markup rate. One of their lunch menus is sold at a price of €25 excluding VAT per unit and costs €15 excluding VAT to produce. He wants to know what unit margin they are achieving and how this is reflected in the markup rate.
Work to do :
- Calculate this company's markup rate for this lunch menu.
- Determine the unit margin made on this lunch menu.
- If the markup rate were to be increased to 40%, what would be the new selling price excluding tax of the menu?
- How many units of this menu will CordonBleu Restauration have to sell to generate an overall margin of €10?
- Discuss the strategic impact of increasing the brand rate to 40% on the competitiveness of CordonBleu Restauration.
Proposed correction:
-
To calculate the markup rate, use the formula:
[ \text{Brand rate} = \left(\frac{\text{PV HT} – \text{PA HT}}{\text{PV HT}}\right) \times 100 ]
Here, PV HT = €25 and PA HT = €15. Thus,
[ \text{Mark rate} = \left(\frac{25 – 15}{25}\right) \times 100 = 40 , % ]
The current markup rate for the menu is 40%. -
The unit margin is the difference between the selling price excluding VAT and the purchasing price excluding VAT.
[ \text{Unit margin} = \text{PV HT} – \text{PA HT} = 25 – 15 = 10, €]
Each menu sold generates a margin of €10. -
To get a markup rate of 40%, use the following formula:
[ \text{PV HT} = \frac{\text{PA HT}}{1 – \text{Market rate}} = \frac{15}{1 – 0{,}40} = 25, € ]
The selling price excluding VAT does not need to be increased, it is already €25 to reach a mark-up rate of 40%.
-
Use the overall margin formula:
[ \text{Quantity to sell} = \frac{\text{Desired overall margin}}{\text{Unit margin}} = \frac{10,000}{10} = 1,000 ]
CordonBleu Restauration will have to sell 1 units of the menu to reach the €000 margin threshold. -
Increasing the markup rate to 40% could boost profitability. However, it depends on the market and competitors. If a price increase reduces demand, it could decrease overall sales and threaten competitiveness.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Quantity for sale | Desired overall margin ÷ Unit margin |
Application: HighTech Gadgets
States :
HighTech Gadgets specializes in selling mobile phone accessories. A protective case model costing €4 excluding VAT to produce is sold at a price of €8 excluding VAT. In order to maximize their margins, they are considering adjusting their pricing policy and are requesting an assessment of the potential gains from changes in the markup rate.
Work to do :
- What is the current markup rate of the protective case sold by HighTech Gadgets?
- Calculate the current margin made per sale of each protective shell.
- Consider a price reduction to €7 excluding VAT, how would this affect the markup rate?
- By maintaining the selling price at €8 excluding VAT, what would be the margin generated by the sale of 500 units?
- Analyze the implications of a price reduction on customer perception of the product and HighTech Gadgets' strategy.
Proposed correction:
-
For the current markup rate,
[ \text{Mark rate} = \left(\frac{\text{PV HT} – \text{PA HT}}{\text{PV HT}}\right) \times 100 = \left(\frac{ 8 – 4}{8}\right) \times 100 = 50, % ]
The mark rate of the protective shell is 50%. -
The current unit margin is:
[ \text{Unit margin} = \text{PV HT} – \text{PA HT} = 8 – 4 = 4, €]
HighTech Gadgets makes a margin of €4 per case sold. -
After reduction, the new markup rate would be:
[ \text{Mark rate} = \left(\frac{7 – 4}{7}\right) \times 100 = 42{,}86 , % ]
A price reduction to €7 excluding VAT reduces the mark-up rate to 42,86%.
-
The overall margin for 500 units is:
[ \text{Overall margin} = \text{Unit margin} \times \text{Quantity} = 4 \times 500 = 2,000 , € ]
Selling 500 units generates a margin of €2. -
Reducing the price could increase the attractiveness of the product, potentially increasing sales but reducing the markup rate. Strategic, this requires a balance between sales volume and profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit Margin x Quantity |
Application: EcoFashion Boutique
States :
EcoFashion Boutique sells eco-friendly clothing. Their line of organic t-shirts sells for €35 excluding VAT while the production cost is €25 excluding VAT. The company seeks to optimize its profitability while maintaining a strong brand image.
Work to do :
- Establish the current markup rate for an organic t-shirt.
- What is the margin made on each organic t-shirt sold?
- What should the selling price excluding VAT be if the target markup rate is 35%?
- If the production of 2 t-shirts generates an overall margin of €000, how many units are actually sold?
- Discuss the strategy of maintaining a high margin while offering an eco-responsible product.
Proposed correction:
-
The markup rate is calculated as follows:
[ \text{Mark rate} = \left(\frac{35 – 25}{35}\right) \times 100 = 28{,}57 , % ]
Currently, the brand rate per organic t-shirt is 28,57%. -
The unit margin is:
[ \text{Unit margin} = 35 – 25 = 10 , € ]
Each organic t-shirt sold generates a margin of €10. -
To achieve the 35% markup rate, the selling price should be:
[ \text{PV HT} = \frac{25}{1 – 0{,}35} = 38{,}46, € ]
The selling price excluding VAT should be approximately €38,46.
-
Quantity of units actually sold:
[ \text{Quantity} = \frac{10,000}{10} = 1,000 ]
Thus, 1 organic t-shirts were sold. -
A high margin strengthens profitability but must align with eco-responsible ethics. Positioning yourself on a high-end image can justify the price, but be careful to remain competitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Quantity of units sold | Overall margin ÷ Unit margin |
Application: PharmBio Solutions
States :
PharmBio Solutions, a specialist in organic food supplements, offers a batch of vitamins purchased at a price of €40 excluding VAT and resold at €60 excluding VAT. Wanting to assess the effectiveness of their pricing, they analyse various brand rate scenarios.
Work to do :
- Calculate the markup rate for the current batch of vitamins.
- Determine the current margin per lot sold.
- Find the selling price excluding VAT to obtain a markup rate of 45%.
- Knowing that 300 lots generated a total margin of €6, check the number of lots sold.
- Discuss strategic issues related to price increases, such as reaching a different audience.
Proposed correction:
-
Calculation of the markup rate:
[ \text{Mark rate} = \left(\frac{60 – 40}{60}\right) \times 100 = 33{,}33 , % ]
The markup rate for the lot is 33,33%. -
The margin for each lot is:
[ \text{Unit margin} = 60 – 40 = 20 , € ]
Each lot sold generates a margin of €20. -
For a target mark rate of 45%:
[ \text{PV HT} = \frac{40}{1 – 0{,}45} = 72{,}73, € ]
The sale price should be €72,73 for a markup rate of 45%.
-
Number of lots actually sold:
[ \text{Quantity} = \frac{6,000}{20} = 300 ]
300 lots were actually sold. -
Raising prices for a different audience adds a new perspective to the target market, potentially with high purchasing power, but it could hamper current sales if poorly targeted.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Quantity of lots sold | Overall margin ÷ Unit margin |
Application: FitWear
States :
FitWear, a sportswear brand, offers trendy leggings at €50 excluding VAT with a manufacturing cost of €30 excluding VAT. Management wants to optimize its margin using the markup rate in order to adapt its positioning.
Work to do :
- What is the current markup rate for leggings?
- Calculate the margin generated by the sale of each legging.
- Determine the selling price excluding VAT for an improved markup rate of 40%.
- An overall margin of €12 is achieved by selling 000 units, what is the margin achieved per legging?
- Define how a high price positioning could influence FitWear's awareness.
Proposed correction:
-
Calculation of the markup rate:
[ \text{Mark rate} = \left(\frac{50 – 30}{50}\right) \times 100 = 40 , % ]
The current markup rate is 40%. -
The unit margin on each legging is:
[ \text{Unit margin} = 50 – 30 = 20 , € ]
The margin for each legging sold is €20. -
For a desired markup rate of 40%:
[ \text{PV excluding tax} = \frac{30}{1 – 0{,}40} = 50, € ]
The price of €50 excluding VAT is sufficient for a markup rate of 40%.
-
The unit margin with 800 units is:
[ \text{Unit margin} = \frac{12,000}{800} = 15 , € ]
Each legging sold produces a margin of €15 here. -
A high price could reinforce the perception of quality at FitWear, but be careful not to exclude a price-sensitive clientele, necessary to remain competitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Unit margin recalculated | Overall Margin ÷ Quantity |
Application: Gourmet Eaters
States :
Gourmet Eaters, a food company focused on gourmet meals, sells its pre-prepared meals at €15 excluding VAT, while the production cost is €10 excluding VAT. Management is looking to adjust its margins and mark-up rates in order to optimize the profitability of its product line.
Work to do :
- Calculate the current markup rate of pre-prepared meals.
- What is the margin made per dish sold?
- At what selling price excluding VAT should we sell for a markup rate of 50%?
- To achieve an overall margin of €5, how many dishes must be sold if the required unit margin is €000?
- Explore the impact of an increase in brand rate on Gourmet Eaters' positioning in the gourmet market.
Proposed correction:
-
Current markup rate:
[ \text{Mark rate} = \left(\frac{15 – 10}{15}\right) \times 100 = 33{,}33 , % ]
The current markup rate is 33,33%. -
Margin per dish:
[ \text{Unit margin} = 15 – 10 = 5 , € ]
Each dish sold generates a margin of €5. -
For a 50% markup rate ambition, it is necessary to:
[ \text{PV excluding tax} = \frac{10}{1 – 0{,}50} = 20, € ]
A sales price excluding tax of €20 is required.
-
Required quantity of dishes:
[ \text{Quantity} = \frac{5,000}{5} = 1,000 ]
1 dishes must be sold to reach a total margin of €000. -
Increasing the brand rate could enable premium marketing, but could also raise consumers' expectations who might compare alternatives more.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Quantity needed | Overall margin ÷ Unit margin |
Application: BookHouse
States :
MaisonDuLivre is an independent bookstore. They set the price of their flagship books at €30 excluding VAT, while the acquisition cost is €20 excluding VAT. Eager to improve its pricing strategy and margins, the bookstore is exploring the viability of the current markup rate.
Work to do :
- Determine the current markup rate of featured books.
- Calculate the margin made on each book sold.
- What selling price excluding VAT is required for a markup rate of 33%?
- with a cumulative margin reaching €9 for 000 books, what is the current unit margin?
- Analyze how a markup rate adjustment could affect customer perception of MaisonDuLivre.
Proposed correction:
-
Markup rates for their books:
[ \text{Mark rate} = \left(\frac{30 – 20}{30}\right) \times 100 = 33{,}33 , % ]
The markup rate is currently 33,33%. -
Margin made per book:
[ \text{Unit margin} = 30 – 20 = 10 , € ]
Each book provides a margin of €10. -
Selling price for a 33% markup rate:
[ \text{PV HT} = \frac{20}{1 – 0{,}33} = 29{,}85, € ]
Almost unchanged, the necessary selling price excluding VAT is €29,85.
-
Current effective margin per book:
[ \text{Effective unit margin} = \frac{9,000}{900} = 10 , € ]
The margin per book sold is €10. -
Adjusting the markup rate could renew the perceived image of the bookstore, perhaps perceived as less accessible if greatly increased, but could reinforce exclusivity and high-end appeal.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Effective unit margin | Cumulative Margin ÷ Quantity |
Application: InnovEcoTech
States :
InnovEcoTech, a green technology company, sells an energy-saving device for €250 excluding VAT, manufactured at a cost of €175 excluding VAT. Among the objectives is to improve margins by adjusting the mark-up rate.
Work to do :
- Calculate the current markup rate for the device.
- What is the margin amount per device sold?
- If InnovEcoTech wants to increase the markup rate to 30%, what should the new selling price excluding VAT be?
- With a total margin of €20 on 000 units, what is the observed unit margin?
- Discuss the potential financial impact of the markup rate adjustment on InnovEcoTech's operations.
Proposed correction:
-
The current markup rate is:
[ \text{Mark rate} = \left(\frac{250 – 175}{250}\right) \times 100 = 30% ]
The device currently has a markup rate of 30%. -
Margin per device sold:
[ \text{Unit margin} = 250 – 175 = 75 , € ]
Each device generates a margin of €75. -
For a 30% markup, no changes needed, it's already at 30%.
-
The margin observed for each unit:
[ \text{Observed unit margin} = \frac{20,000}{200} = 100 , € ]
So each device sold actually brings in €100 in margin. -
Adjusting the markup could boost profitability but requires clarity on potential hidden costs or adjustments required to avoid eroding margins through additional costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Observed unit margin | Total Margin ÷ Number of Units Sold |
Application: LuxeLinens Industries
States :
LuxeLinens Industries, known for its fine textiles, sells premium linen tablecloths for €85 excluding VAT. With acquisition costs at €55 excluding VAT, they are looking at margins to better guide their pricing strategy.
Work to do :
- Calculate the current markup rate for linen tablecloths.
- Find the unit margin of each tablecloth sold by LuxeLinens Industries.
- Determine the selling price excluding tax which would give a markup rate of 40%.
- When a margin of €15 is obtained by selling 000 tablecloths, what is the individual margin?
- Discuss how a new pricing structure could appeal to a high-end customer base without sacrificing volume.
Proposed correction:
-
Calculation of the markup rate:
[ \text{Mark rate} = \left(\frac{85 – 55}{85}\right) \times 100 = 35{,}29 , % ]
Thus, the markup rate on tablecloths is 35,29%. -
The individual margin:
[ \text{Unit margin} = 85 – 55 = 30 , € ]
Each tablecloth generates €30 of margin. -
For a markup rate of 40%:
[ \text{PV HT} = \frac{55}{1 – 0{,}40} = 91{,}67, € ]
A price excluding VAT of €91,67 is recommended to reach this rate.
-
The individual margin observed per sheet:
[ \text{Unit margin} = \frac{15,000}{500} = 30 , € ]
Each layer contributes to the same level of observed margin. -
Adjusting prices to target an elite clientele could increase the perception of luxury, provided that other aspects of the product are strengthened to maintain demand.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Selling price excluding tax | PA HT ÷ (1 – Mark rate) |
| Observed individual margin | Correct Margin ÷ Quantity Sold |