How to Calculate Total Gross Margin | 9 Exercises

Application: Gold Sparkle Jewelry

States :

Bijouterie Éclat d'Or wants to analyze its financial performance for the first quarter of the year. It sold 300 pieces of its line of silver bracelets. The unit selling price excluding tax (PV HT) is €80, and the unit purchase price excluding tax (PA HT) is €50. In order to better understand its profitability, management wants to calculate the total gross margin generated by these sales.

Work to do :

1. Calculate the unit margin.
2. What is the total gross margin for these sales?
3. If the applicable VAT rate is 20%, what is the sales price including VAT of a bracelet?
4. Determine the margin rate.
5. Think: What strategy could you propose to increase the total gross margin?

Proposed correction:

1. Unit margin :
   The unit margin is calculated as follows: PV HT – PA HT.
   Substituting the values, we have €80 – €50 = €30.
   The unit margin is therefore €30.

2. Total gross margin :
   The total gross margin is obtained by multiplying the unit margin by the quantity sold.
   €30 x 300 = €9.
   The total gross margin is €9.

3. Sales price including tax of a bracelet :

To calculate the sales price including tax, we use the formula: PV including tax = PV excluding tax x (1 + VAT rate).
Replacing, €80 x 1,20 = €96.
The selling price including tax for a bracelet is €96.

4. Margin rate :
   The margin rate is calculated using the formula: ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting the values ​​gives ((€80 – €50) ÷ €50) x 100 = 60%.
   The margin rate is 60%.

5. Mind :
   To increase the total gross margin, the company may consider negotiating lower purchase prices or increasing the selling price while maintaining demand. Reducing production-related costs or optimizing internal processes could also contribute to this goal.

Formulas Used:

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

Application: Style & Chic Hairstyle

States :

The Style & Chic hair salon introduced a new natural hair coloring service in the last half year. This service was performed 120 times with a sales price excluding tax per service of €70 and a cost excluding tax of €40. To find out if this service is profitable, the manager wants to calculate the total gross margin obtained.

Work to do :

1. Calculate the unit margin for this service.
2. What is the total gross margin generated by this service?
3. What would the sales price including VAT be if the VAT is 5,5%?
4. Determine the markup rate.
5. Analyze the potential impact if the number of services was 150 instead of 120.

Proposed correction:

1. Unit margin :
   The unit margin is calculated by subtracting the purchase cost from the selling price excluding tax: €70 – €40 = €30.
   The unit margin is €30.

2. Total gross margin :
   It is calculated by multiplying the unit margin by the number of services performed.
   €30 x 120 = €3.
   The total gross margin generated is €3.

3. Sales price including tax :

To obtain the price including tax with a VAT of 5,5%, we use the formula: PV including tax = PV excluding tax x (1 + VAT rate).
€70 x 1,055 = €73,85.
The sales price including VAT is €73,85.

4. Brand taxes :
   It is calculated using the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
   ((€70 – €40) ÷ €70) x 100 = 42,86%.
   The markup rate is 42,86%.

5. Impact analysis :
   If the number of services increases to 150, the new total gross margin would be €30 x 150 = €4.
   This means an increase of €900 compared to the initial scenario, which improves the profitability of the service.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Total gross margin	Unit margin x Number of services
Sales price including tax	PV excluding VAT x (1 + VAT rate)
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Le Gourmet Dynamique Restaurant

States :

The restaurant "Le Gourmet Dynamique" has recently introduced a special evening menu sold at a sales price excluding tax of €50 per menu, while the cost of the ingredients to make this menu is €30 excluding tax. During the last month, 200 menus were sold. The management wishes to evaluate the performance of this menu by calculating the total gross margin.

Work to do :

1. What is the unit margin for each menu sold?
2. Calculate the total gross margin for special menu sales.
3. If the VAT rate is 20%, what is the sales price including VAT of a special menu?
4. Determine the margin rate.
5. What strategy could you recommend to increase the mark rate?

Proposed correction:

1. Unit margin :
   The unit margin is calculated as follows: PV excluding tax – PA excluding tax, i.e. €50 – €30 = €20.
   The unit margin is €20.

2. Total gross margin :
   It is calculated by: Unit margin x Number of menus sold.
   €20 x 200 = €4.
   The total gross margin is €4.

3. Sales price including tax :

The sales price including tax is calculated with: VAT inclusive price = VAT exclusive price x (1 + VAT rate).
€50 x 1,20 = €60.
The sales price including VAT is €60.

4. Margin rate :
   The margin rate is calculated via ((PV HT – PA HT) ÷ PA HT) x 100.
   ((€50 – €30) ÷ €30) x 100 = 66,67%.
   The margin rate is 66,67%.

5. Recommendation strategy :
   To increase brand equity, the company may consider improving the perception of menu value by introducing premium ingredients, increasing the selling price, or reducing ingredient costs through economies of scale.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Total gross margin	Unit margin x Number of menus sold
Sales price including tax	PV excluding VAT x (1 + VAT rate)
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100

Application: Pages and Quills Bookstore

States :

The bookstore "Pages et Plumes" has launched a new collection of novels that sell for €25 excluding VAT each, with a unit purchase price of €15. The bookstore sold 500 copies during a promotional campaign. In order to adjust its future strategies, it wants to know the total gross margin of sales.

Work to do :

1. Calculate the unit margin for each book sold.
2. What is the total gross margin for the novel collection?
3. If VAT is 5,5%, what is the sales price including VAT per novel?
4. What is the markup rate of this collection?
5. Propose a strategy to increase sales without reducing margins.

Proposed correction:

1. Unit margin :
   The unit margin is the difference between the selling price excluding VAT and the purchasing price excluding VAT: €25 – €15 = €10.
   The unit margin is €10.

2. Total gross margin :
   It is calculated by multiplying the unit margin by the number of books sold: €10 x 500 = €5.
   The total gross margin is therefore €5.

3. Sales price including tax :

Use the formula PV TTC = PV HT x (1 + VAT rate) to calculate the price including tax.
€25 x 1,055 = €26,375, rounding to €26,38.
The sales price including tax per novel is €26,38.

4. Brand taxes :
   The markup rate is calculated by: ((PV HT – PA HT) ÷ PV HT) x 100.
   ((€25 – €15) ÷ €25) x 100 = 40%.
   The markup rate of this collection is 40%.

5. Sales strategy :
   To increase sales without reducing margins, the bookstore can intensify its marketing campaigns, organize launch events, improve the in-store customer experience or expand availability online and at other partner distributors.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Total gross margin	Unit margin x Number of books sold
Sales price including tax	PV excluding VAT x (1 + VAT rate)
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: Techno@Maison Store

States :

The Techno@Maison store specializes in the sale of household appliances. It recently sold a stock of 50 washing machines for a unit price excluding tax of €400, while the purchase price excluding tax was €300. Management is seeking to calculate the total gross margin associated with these sales.

Work to do :

1. Determine the unit margin for each washing machine.
2. What is the total gross margin obtained on these sales?
3. Calculate the sales price including VAT if the VAT is 20%.
4. What is the margin rate for the washing machine?
5. What factors could affect Techno@Maison's margin rate in the future?

Proposed correction:

1. Unit margin :
   The unit margin is calculated by: PV HT – PA HT, i.e. €400 – €300 = €100.
   The unit margin is €100.

2. Total gross margin :
   Let's calculate it by multiplying the unit margin by the quantity sold: €100 x 50 = €5.
   The total gross margin is €5.

3. Sales price including tax :

The calculation is made by multiplying the selling price excluding VAT by (1 + VAT rate): €400 x 1,20 = €480.
The sales price including VAT is €480.

4. Margin rate :
   The margin rate is obtained by the formula: ((PV HT – PA HT) ÷ PA HT) x 100.
   ((€400 – €300) ÷ €300) x 100 = 33,33%.
   The margin rate is 33,33%.

5. Influencing factors :
   Several elements can affect Techno@Maison's margin rate: variations in supplier purchasing costs, changes in sales prices in response to competition, as well as logistics or commercial costs.

Formulas Used:

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

Application: Textile Cordage Workshop

States :

The Textile Cordage Workshop makes and sells a range of handcrafted linen hats at a selling price excluding VAT of €60 per unit. The purchase price excluding VAT of the raw materials for each hat is €35. During the last summer season, the workshop sold 100 hats. The director wishes to calculate the total gross margin of this operation.

Work to do :

1. Calculate the unit margin for each hat.
2. What is the total gross margin for hats sold?
3. If the VAT rate is 20%, what is the selling price including VAT of a hat?
4. Determine the markup rate for this product.
5. What initiative could be proposed to optimize margins on this product range?

Proposed correction:

1. Unit margin :
   The unit margin is obtained by the formula: PV HT – PA HT, i.e. €60 – €35 = €25.
   The unit margin is €25.

2. Total gross margin :
   It is equal to Unit Margin x Quantity Sold: €25 x 100 = €2.
   The total gross margin is €2.

3. Sales price including tax :

The sales price including tax is calculated with: PV including tax = PV excluding tax x (1 + VAT rate).
€60 x 1,20 = €72.
The sales price including VAT is €72.

4. Brand taxes :
   For the mark rate: ((PV HT – PA HT) ÷ PV HT) x 100.
   ((€60 – €35) ÷ €60) x 100 = 41,67%.
   The markup rate is 41,67%.

5. Optimization Initiative :
   To optimize margins, the shop could explore using less expensive raw materials available in bulk, reposition the range towards a more premium segment with higher price potential, or reduce production losses through more efficient processes.

Formulas Used:

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

Application: Maison&Rêve Real Estate Agency

States :

The Maison&Rêve Real Estate Agency recently sold three properties with a total sale price excluding VAT of €900, and a cumulative purchase cost excluding VAT of €000. The agency would like to know the total gross margin made on these transactions in order to prepare its annual report.

Work to do :

1. What is the overall margin for the sale of these goods?
2. Determine the total sales price including VAT if the applicable VAT rate is 20%.
3. Calculate the markup rate for this transaction.
4. If the agency wanted to increase its margin by 10%, what would be the new ideal selling price excluding tax?
5. Analysis of the results: What levers could the agency activate to improve its profitability in the future?

Proposed correction:

1. Overall margin :
   The overall margin is calculated as: PV HT – PA HT, i.e. €900 – €000 = €750.
   The overall margin is €150.

2. Total selling price including VAT :
   To find out the total VAT included, use: VAT included = VAT excluding VAT x (1 + VAT rate).
   €900 x 000 = €1,20.
   The total sale price including tax is €1.

3. Brand taxes :

The formula for the markup rate is: ((PV HT – PA HT) ÷ PV HT) x 100.
((€900 – €000) ÷ €750) x 000 = 900%.
The markup rate is 16,67%.

4. New selling price excluding tax for an increased margin :
   If the agency wanted to increase its margin by 10%, the new margin would be €165 (€000 + 150%).
   To determine the new PV excluding tax, we add this margin to the PA excluding tax: €750 + €000 = €165.
   Thus, the new ideal PV HT would be €915.

5. Analyze results :
   To improve its profitability, the agency must work on several aspects such as optimizing operational costs, increasing the value of its properties through renovation or home staging work, or diversifying its sources of income by offering additional services such as real estate credit advice.

Formulas Used:

Title	Formulas
Overall margin	PV HT – PA HT
Total selling price including VAT	PV excluding VAT x (1 + VAT rate)
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
New selling price excluding VAT	PA HT + New desired margin

Application: Craft Brewery Hops & Malt

States :

The Houblon & Malt Craft Brewery has produced and sold 1 cases of its “Blonde du Saloon” beer. The selling price excluding tax of a case is €000, while the production cost is €60 per case. The brewer would like to know the total gross margin made for this production.

Work to do :

1. Calculate the unit margin for each case of beer sold.
2. What is the total gross margin for all cases sold?
3. What is the sales price including tax of a case if the applicable VAT is 20%?
4. Estimate the margin rate of this production.
5. Discussion: How could the brewery reduce its production costs without compromising quality?

Proposed correction:

1. Unit margin :
   For each case, the unit margin is found by: PV HT – PA HT.
   So, €60 – €40 = €20.
   The unit margin is €20.

2. Total gross margin :
   The total gross margin is given by: Unit margin x Number of cases sold.
   €20 x €1 = €000.
   The total gross margin is €20.

3. Selling price including tax for a case :

Use the formula: PV including VAT = PV excluding VAT x (1 + VAT rate).
€60 x 1,20 = €72.
The sales price including tax for a case is €72.

4. Margin rate :
   It is calculated via: ((PV HT – PA HT) ÷ PA HT) x 100.
   ((€60 – €40) ÷ €40) x 100 = 50%.
   The production margin rate is 50%.

5. Discussion :
   The brewery may consider purchasing raw materials in bulk to benefit from discounts, optimizing its production processes to reduce energy expenditure, or investing in more efficient equipment that reduces production time while maintaining quality.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Total gross margin	Unit margin x Number of cases sold
Sales price including tax	PV excluding VAT x (1 + VAT rate)
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100

Application: Pixel & Line Graphic Studio

States :

Pixel & Trait Graphic Design Studio produced custom advertising posters for a total of 200 orders. Each order was billed at €150 excluding VAT, and the average production cost was €90 per order. The studio is seeking to establish the total gross margin generated by this promotional activity.

Work to do :

1. What is the unit margin per order?
2. How much is the total gross margin for all orders?
3. If VAT is 20%, what is the price including VAT per order?
4. Calculate the studio's markup rate.
5. What recommendations could you make to promote this activity and increase the number of orders?

Proposed correction:

1. Unit margin :
   The unit margin is determined by: PV HT – PA HT.
   150 € – 90 € = 60 €.
   The unit margin per order is €60.

2. Total gross margin :
   It is calculated from: Unit margin x Number of orders.
   €60 x 200 = €12.
   The total gross margin is €12.

3. Price including VAT per order :

Calculated by: PV including tax = PV excluding tax x (1 + VAT rate).
€150 x 1,20 = €180.
The price including tax per order is €180.

4. Brand taxes :
   The markup rate follows the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
   ((€150 – €90) ÷ €150) x 100 = 40%.
   The markup rate is 40%.

5. Recommendations :
   To increase orders, the studio could diversify its service offerings, offer preferential rates for large volumes, create partnerships with event agencies, or intensify its communication on social networks and digital platforms.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Total gross margin	Unit margin x Number of orders
Sales price including tax	PV excluding VAT x (1 + VAT rate)
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100