In this section:
- Application: Shoes of the Future
- Application: Artists' Cafe
- Application: Ecological Toy Factory “LudikNature”
- Application: Fashion & Chic
- Application: Fashion Stars
- Application: MetalInnov
- Application: The House of Flavors
- Application: Machining Performance
- Application: Innovative Textile
- Application: Ethical Fashion
- Application: Sophie's Treats
Application: Shoes of the Future
States :
Les Chaussures du Futur is an innovative company specializing in the manufacture of eco-friendly shoes. The company wants to better understand its financial performance and has decided to calculate its industrial margin for its new “Eco-Runners” shoes. The available information is as follows:
- Unit production cost: €30
- Sale price excluding tax (HT): €50
- Quantity sold: 1 pairs
- Total fixed cost: €10
Work to do :
- Calculate the unit margin of “Eco-Runners”.
- Determine the overall margin made on sales of “Eco-Runners”.
- Evaluate the margin rate of “Eco-Runners”.
- Analyze the impact of a 10% increase in unit production costs on unit margin.
- Discuss the strategic implications if the total fixed cost increases by €5.
Proposed correction:
Calculate the unit margin of “Eco-Runners”.The unit margin is calculated by subtracting the unit production cost from the sales price excluding tax. Unit margin = PV excluding tax – Unit production cost Unit margin = €50 – €30 = €20 The unit margin for each pair of “Eco-Runners” shoes is €20.
Determine the overall margin made on sales of “Eco-Runners”.The overall margin is obtained by multiplying the unit margin by the quantity sold. Overall margin = Unit margin x Quantity sold Overall margin = €20 x 1 = €000 The overall margin on sales is €20.
Evaluate the margin rate of “Eco-Runners”.
The margin rate is calculated by dividing the unit margin by the unit production cost and then multiplying by 100 to obtain a percentage.
Margin rate = ((PV HT – Unit production cost) ÷ Unit production cost) x 100
Margin rate = ((€50 – €30) ÷ €30) x 100 = 66,67%
The margin rate of the “Eco-Runners” is 66,67%.
Analyze the impact of a 10% increase in unit production costs on unit margin.A 10% increase in unit production cost means that the cost increases from €30 to €33. New unit production cost = €30 + (€30 x 0,10) = €33 New unit margin = PV excluding VAT – New unit production cost New unit margin = €50 – €33 = €17 The unit margin would decrease to €17 if the unit production cost increases by 10%.
Discuss the strategic implications if the total fixed cost increases by €5.A €5 increase in total fixed costs would bring them to €000. This increase in fixed costs does not directly affect the unit or overall margin, but it does mean that the company must sell more to break even. Strategically, Les Chaussures du Futur could consider raising prices, reducing variable costs, or increasing sales volumes to offset this increase in fixed costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – Unit production cost |
| Overall margin | Unit margin x Quantity sold |
| Margin rate | ((PV HT – Unit production cost) ÷ Unit production cost) x 100 |
| New unit production cost | Unit Production Cost + (Unit Production Cost x Percentage Increase) |
| New unit margin | PV HT – New unit production cost |
Application: Artists' Cafe
States :
Café des Artistes, a thriving business located in the heart of Bordeaux, specializes in roasting exceptional coffees. The manager wants to optimize his business strategy by better understanding his sales margin. To do this, he has the following data for one of his flagship products, “Arabica Grand Cru” coffee:
- Retail price excluding tax (RPE): €15 per pack
- Purchase price excluding tax (PA HT): €10 per pack
- Quantity sold: 500 packs
The manager also wishes to analyze the strategic implications of the calculated results.
Work to do :
- Calculate the unit margin for “Arabica Grand Cru” coffee.
- Determine the overall margin made on the sale of 500 packages.
- Calculate the margin rate for this product.
- Analyze the strategic implications of a 10% increase in purchase price on unit margin.
- Propose a strategy to improve the overall sales margin, taking into account the results obtained.
Proposed correction:
Calculation of unit margin:The unit margin is the difference between the sales price excluding tax (SPT) and the purchase price excluding tax (PP). Unit margin = SPT – PP = €15 – €10 = €5. The unit margin for “Arabica Grand Cru” coffee is €5 per pack.
Calculation of the overall margin:The overall margin is obtained by multiplying the unit margin by the quantity sold. Overall margin = Unit margin x Quantity sold = €5 x 500 = €2. The overall margin on the sale of 500 packs is €500.
Calculation of the margin rate:
The margin rate is calculated by the following formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€15 – €10) ÷ €10) x 100 = 50%.
The margin rate for “Arabica Grand Cru” coffee is 50%.
Analysis of the implications of an increase in the purchase price:If the purchase price increases by 10%, the new AP excluding tax becomes: €10 + (10% of €10) = €11. The new unit margin is: €15 – €11 = €4. A 10% increase in the purchase price would decrease the unit margin to €4, which negatively impacts profitability per pack.
Proposed strategy to improve overall sales margin:To improve the overall sales margin, Café des Artistes could explore several strategies: increasing the selling price to offset the increase in costs, diversifying the product range to attract a wider customer base, or negotiating more advantageous rates with suppliers. A thorough analysis of costs and markets could also reveal opportunities to optimize the supply chain.
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 |
Application: Ecological Toy Factory “LudikNature”
States :
LudikNature is a company specializing in the manufacture of ecological wooden toys. It is committed to using sustainable and environmentally friendly materials. At the end of the year, LudikNature wishes to evaluate its economic performance, in particular by calculating its industrial margin in order to adjust its pricing and production strategies. Here are some financial data for the year:
- Cost of raw materials: €150
- Direct labor cost: €70
- Other production costs: €30
- Turnover (CA): €400
Work to do :
- Calculate the total cost of production of LudikNature.
- Determine LudikNature's industrial margin using turnover and total production cost.
- Analyze how a 10% reduction in raw material costs would affect the industrial margin.
- Explain the impact of a 5% increase in turnover on the industrial margin, without a change in production costs.
- Propose a strategy to improve LudikNature’s industrial margin, taking into account the results obtained.
Proposed correction:
Calculation of total production cost:The total cost of production is the sum of all costs associated with manufacturing the products. It includes the cost of raw materials, direct labor cost, and other production costs. Total cost of production = Cost of raw materials + Direct labor cost + Other production costs. Total cost of production = €150 + €000 + €70 = €000. Thus, the total cost of production of LudikNature is €30.
Calculation of the industrial margin:The industrial margin is calculated by subtracting the total production cost from the turnover. Industrial margin = Turnover – Total production cost. Industrial margin = €400 – €000 = €250. LudikNature's industrial margin is €000.
Analysis of the impact of a 10% reduction in the cost of raw materials:
If the cost of raw materials is reduced by 10%, the new cost of raw materials will be:
New cost of raw materials = €150 – (000% x €10).
New cost of raw materials = €150 – €000 = €15.
New total production cost = €135 + €000 + €70 = €000.
New industrial margin = €400 – €000 = €235.
With this reduction, the industrial margin would increase to €165.
Impact of a 5% increase in turnover:If turnover increases by 5%, the new turnover will be:New turnover = €400 + (000% x €5).New turnover = €400 + €000 = €400.New industrial margin = €000 – €20 = €000.A 420% increase in turnover would bring the industrial margin to €000.
Proposed strategy to improve the industrial margin:To improve the industrial margin, LudikNature could consider further reducing its production costs, for example by opting for more competitive raw material suppliers. Furthermore, the company could increase its sales prices, provided that the market allows it, which could improve turnover without proportionally affecting costs. These combined strategies could significantly increase the industrial margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Total production cost | Raw material cost + Direct labor cost + Other production costs |
| Industrial margin | Turnover – Total cost of production |
| New cost of raw materials | Cost of raw materials – (10% x Cost of raw materials) |
| New turnover | Turnover + (5% x Turnover) |
Application: Fashion & Chic
States :
Mode & Chic is a company specializing in the sale of high-end clothing. To better understand the profitability of its items, it wants to analyze the sales margin of one of its coat collections. Currently, the sales price excluding tax (SPT) of a coat is €150 and the purchase price excluding tax (PPT) is €100. Mode & Chic has sold 300 coats in the last month. Management also wants to explore the impact of a price reduction on the margin.
Work to do :
- Calculate the unit margin for a coat.
- Determine the overall margin made on the sale of the 300 coats.
- Calculate the margin rate for the coat.
- If the sales price excluding tax is reduced to €140, what would be the new margin rate?
- Discuss the strategic implications of this price reduction on profitability.
Proposed correction:
Unit margin:The unit margin is the difference between the sales price excluding tax and the purchase price excluding tax. Let's use the following formula: Unit margin = PV excluding tax – PA excluding tax Unit margin = €150 – €100 = €50 Thus, the unit margin for each coat is €50.
Overall margin:The overall margin is calculated by multiplying the unit margin by the number of coats sold. Overall margin = Unit margin x Quantity sold Overall margin = €50 x 300 = €15 The overall margin made on the sale of the 000 coats is €300.
Margin rate:
The margin rate measures the profitability of each item relative to its purchase cost. The formula is:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€150 – €100) ÷ €100) x 100 = 50%
The coat margin rate is 50%.
New margin rate with price reduction:If the sale price is reduced to €140, the new margin rate is calculated as follows: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 Margin rate = ((€140 – €100) ÷ €100) x 100 = 40% With the price reduction, the new margin rate is 40%.
Strategic implications:
Reducing the selling price to €140 reduces the margin rate from 50% to 40%. This could help attract more customers and increase sales volume. However, it is important to ensure that the increase in sales compensates for the decrease in profitability per item. The decision should be aligned with the company's overall strategy, taking into account competition and customer expectations.
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 |
Application: Fashion Stars
States :
Les Étoiles de la Mode is a textile company specializing in the manufacture of high-end clothing. To better understand their financial performance, management would like to calculate the industrial margin of their different product lines. They provided the following information for the last quarter:
- Total production cost: €150
- Total turnover: €250
- Quantity of clothes produced: 10 units
- Unit production cost: €15
- Unit sale price excluding VAT: €25
Work to do :
- Calculate the company's total industrial margin for the last quarter.
- Determine the unit industrial margin for a garment.
- Calculate the company's industrial margin rate.
- Analyze the impact of a 10% increase in production costs on the total industrial margin.
- Discuss the strategic implications for Les Étoiles de la Mode if the industrial margin remains stable despite a decline in sales.
Proposed correction:
To calculate the total industrial margin, the total production cost must be subtracted from the total turnover. The formula is: Total industrial margin = Total turnover – Total production cost. Applying the figures, we obtain:
Total industrial margin = €250 – €000 = €150. The total industrial margin for the last quarter is €000.The unit industrial margin is calculated by subtracting the unit production cost from the unit selling price excluding VAT. The formula is: Unit industrial margin = Unit selling price excluding VAT – Unit production cost. By applying the figures, we obtain:
Unit industrial margin = €25 – €15 = €10. The unit industrial margin for each garment is €10.The industrial margin rate is calculated by dividing the total industrial margin by the total revenue and then multiplying by 100 to obtain a percentage. The formula is: Industrial margin rate = (Total industrial margin ÷ Total revenue) x 100.
Applying the numbers, we get:
Industrial margin rate = (€100 ÷ €000) x 250 = 000%.
The company's industrial margin rate is 40%.
To analyze the impact of a 10% increase in production costs, we must first calculate the new total production cost, then recalculate the total industrial margin. New total production cost = Total production cost x 1,10. New total production cost = €150 x 000 = €1,10.
New total industrial margin = €250 – €000 = €165. With a 000% increase in production costs, the total industrial margin decreases to €85.If the industrial margin remains stable despite a decline in sales, it means that the company has managed to reduce its costs or maintain its selling prices. This could indicate good cost management or an effective price maintenance strategy. However, a continued decline in sales could jeopardize the long-term viability of the company if it is not offset by improved margins or increased sales volumes.
Formulas Used:
| Title | Formulas |
|---|---|
| Total industrial margin | Total revenue – Total production cost |
| Unit industrial margin | Unit selling price excluding VAT – Unit production cost |
| Industrial margin rate | (Total industrial margin ÷ Total turnover) x 100 |
| New total production cost | Total production cost x 1,10 |
| New total industrial margin | Total Revenue – New Total Production Cost |
Application: MetalInnov
States :
MétalInnov is a company specializing in the manufacturing of metal parts for the automotive industry. In order to better understand its profitability, the company wishes to analyze its industrial margin. The following data is available for the last quarter:
- Turnover excluding tax: €500
- Cost of raw materials: €150
- Labor cost: €100
- Other production costs (energy, machine maintenance, etc.): €50
- Total quantity of parts produced: 10 units
Work to do :
- Calculate the total cost of production.
- Determine the total industrial margin.
- Calculate the unit industrial margin.
- Analyze the impact of a 10% reduction in other production costs on the total industrial margin.
- Discuss the strategic implications for MétalInnov if the unit industrial margin is less than 10% of the unit selling price.
Proposed correction:
Calculate the total cost of production.The total cost of production is the sum of raw material costs, labor costs and other production costs. Total cost of production = Raw material costs + Labor costs + Other production costs = €150 + €000 + €100 = €000. The total cost of production is €50.
Determine the total industrial margin.The industrial margin is calculated by subtracting the total production cost from the net turnover. Total industrial margin = Net turnover – Total production cost = €500 – €000 = €300. The total industrial margin is €000.
Calculate the unit industrial margin.
To determine the unit industrial margin, divide the total industrial margin by the total quantity of parts produced.
Unit industrial margin = Total industrial margin ÷ Total quantity of parts produced = €200 ÷ 000 = €10.
The unit industrial margin is €20 per piece.
Analyze the impact of a 10% reduction in other production costs on the total industrial margin.First, calculate the cost reduction: Reduction = 10% x Other production costs = 0,10 x €50 = €000. New other production costs = €5 – €000 = €50. New total production cost = €000 + €5 + €000 = €45. New total manufacturing margin = €000 – €150 = €000. A 100% reduction in other production costs increases the total manufacturing margin to €000.
Discuss the strategic implications for MétalInnov if the unit industrial margin is less than 10% of the unit selling price.
If the unit industrial margin is less than 10% of the unit selling price, it means that production costs absorb a large portion of revenues. MétalInnov could consider reducing costs, improving production efficiency or increasing the selling price to improve its profitability. A low industrial margin can limit the company's ability to invest in innovation or to withstand price declines in the market.
Formulas Used:
| Title | Formulas |
|---|---|
| Total production cost | Raw material cost + Labor cost + Other production costs |
| Total industrial margin | Turnover excluding tax – Total production cost |
| Unit industrial margin | Total industrial margin ÷ Total quantity of parts produced |
| Cost reduction | Reduction percentage x Other production costs |
| New industrial margin | Net sales – New total production cost |
Application: The House of Flavors
States :
La Maison des Saveurs, a company specializing in the sale of organic food products, wants to optimize its sales strategy to increase its profitability. It currently sells an assortment of artisanal jams. The sales price excluding tax (PV HT) of a jar of jam is €5,00, while the purchase price excluding tax (PA HT) is €3,00. On average, the company sells 2 jars per month. The financial manager wants to analyze the sales margin and explore different strategies to improve it.
Work to do :
- Calculate the unit margin for a jar of jam.
- Determine the overall margin made on monthly jam sales.
- Calculate the margin rate for a jar of jam.
- If La Maison des Saveurs decides to increase its PV excluding tax to €6,00, what would the new margin rate be?
- Discuss the strategic implications of increasing the selling price on the company's profitability and competitiveness.
Proposed correction:
To calculate the unit margin, you must subtract the purchase price excluding tax (PA HT) from the sale price excluding tax (PV HT). The formula is as follows: Unit margin = PV HT – PA HT. Thus, Unit margin = €5,00 – €3,00 = €2,00. The unit margin for each jar of jam is €2,00.
The overall margin is calculated by multiplying the unit margin by the quantity sold. The formula is: Overall margin = Unit margin x Quantity sold. Thus, Overall margin = €2,00 x €2 = €000. The overall margin made on monthly sales is €4.
The margin rate is calculated using the formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100. Applying the values, Margin rate = ((€5,00 – €3,00) ÷ €3,00) x 100 = 66,67%. The margin rate for each jar of jam is 66,67%.
If the PV HT is increased to €6,00, the new margin rate is calculated as follows: Margin rate = ((€6,00 – €3,00) ÷ €3,00) x 100 = 100%. With the increase in the selling price to €6,00, the margin rate increases to 100%.
Increasing the selling price to €6,00 significantly increases the unit margin, which is beneficial for the company's profitability. However, it is crucial to analyze the impact on customer demand. An increase in price could reduce the company's competitiveness, especially if competitors maintain lower prices. The company must consider the price elasticity of demand for its products and assess whether customers are willing to accept the new price without significantly decreasing sales volumes.
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 |
Application: Machining Performance
States :
Usinage Performance is a company specializing in the manufacture of mechanical parts for the automotive industry. The company wants to analyze its profitability by calculating the industrial margin on a series of recent orders. To do this, it has the following data for a specific order:
- Cost of raw materials: €8
- Labor cost: €4
- Other manufacturing costs: €2
- Total sale price of the order (excluding taxes): €20
The company also wants to understand the impact of costs on its margin and assess the profitability of various scenarios.
Work to do :
- Calculate the total manufacturing cost of the order.
- Determine the amount of the industrial margin for the order.
- Evaluate the industrial margin rate as a percentage.
- If labor costs increased by 10%, what would be the impact on the industrial margin?
- Analyze the relevance of a 5% reduction in the selling price to stimulate sales, taking into account the impact on the industrial margin.
Proposed correction:
Calculate the total manufacturing cost of the order.The total manufacturing cost is the sum of the raw material costs, labor costs, and other manufacturing costs.Total manufacturing cost = Raw material cost + Labor cost + Other manufacturing costsTotal manufacturing cost = €8 + €000 + €4 = €000The total manufacturing cost of the order is €2.
Determine the amount of the industrial margin for the order.The industrial margin is calculated by subtracting the total manufacturing cost from the total selling price excluding taxes.Industrial margin = Total selling price excluding taxes – Total manufacturing costIndustrial margin = €20 – €000 = €14The industrial margin for this order is €000.
Evaluate the industrial margin rate as a percentage.
The manufacturing margin rate is calculated by dividing the manufacturing margin by the total manufacturing cost and then multiplying by 100 to obtain a percentage.
Industrial margin rate = (Industrial margin ÷ Total manufacturing cost) x 100
Industrial margin rate = (€6 ÷ €000) x 14 ? 000%
The industrial margin rate is around 42,86%.
If labor costs increased by 10%, what would be the impact on the industrial margin?New labor cost = Labor cost + (Labor cost x 10%)New labor cost = €4 + (€000 x 4) = €000New total manufacturing cost = €0,10 + €4 + €400 = €8New manufacturing margin = €000 – €4 = €400With the increase in labor, the manufacturing margin decreases to €2, a decrease of €000.
Analyze the relevance of a 5% reduction in the selling price to stimulate sales, taking into account the impact on the industrial margin.New total selling price excluding VAT = Total selling price excluding VAT – (Total selling price excluding VAT x 5%)New total selling price excluding VAT = €20 – (€000 x 20) = €000New industrial margin = €0,05 – €19 = €000The 19% reduction in the selling price results in a drop in the industrial margin to €000. It is important to analyze whether this reduction can stimulate sales enough to compensate for the drop in margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Total manufacturing cost | Raw Material Cost + Labor Cost + Other Manufacturing Costs |
| Industrial margin | Total selling price excluding VAT – Total manufacturing cost |
| Industrial margin rate | (Industrial margin ÷ Total manufacturing cost) x 100 |
| New labor cost | Labor Cost + (Labor Cost x Percentage Increase) |
| New total selling price excluding VAT | Total selling price excluding VAT – (Total selling price excluding VAT x Discount percentage) |
Each step of the exercise allows Usinage Performance to better understand the relationship between its costs, its sales prices and its margins, crucial for optimizing profitability.
Application: Innovative Textile
States :
Textile Innovant, a company specializing in the production of eco-responsible clothing, wants to analyze its profitability for the last quarter. It produces organic t-shirts and has recently launched a new production line. The CFO wants to calculate the industrial margin to understand the company's economic performance. The available financial data are as follows: the sales price excluding tax (PV HT) of a t-shirt is €25, the purchase price excluding tax (PA HT) of the raw materials needed to manufacture it is €10, and the quantity sold is 5 units.
Work to do :
- Calculate the unit margin for an organic t-shirt.
- Determine the overall margin made on the sale of the t-shirts.
- Calculate the margin rate of this production line.
- Analyze the impact of a 10% increase in raw material costs on unit margin.
- Discuss the strategic implications for Textile Innovant if the industrial margin decreases by 5%.
Proposed correction:
Unit margin for an organic t-shirt:The unit margin is calculated by subtracting the purchase price excluding tax (PA HT) from the sale price excluding tax (PV HT). Unit margin = PV HT – PA HT
Unit margin = €25 – €10 = €15So the unit margin for each t-shirt is €15.Overall margin on the sale of t-shirts:The overall margin is calculated by multiplying the unit margin by the quantity sold. Overall margin = Unit margin x Quantity sold
Overall margin = €15 x €5 = €000The overall margin made on this sale is €75.Production line margin rate:
The margin rate is calculated by dividing the difference between the PV HT and the PA HT by the PA HT, then multiplying by 100.
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€25 – €10) ÷ €10) x 100 = 150%
The margin rate for this production is 150%.
Impact of a 10% increase in the cost of raw materials:If the cost of raw materials increases by 10%, the new PA HT would be:New PA HT = PA HT + (PA HT x 10 ÷ 100)
New PA HT = €10 + (€10 x 10 ÷ 100) = €11The new unit margin would be:
New unit margin = PV HT – New PA HT
New unit margin = €25 – €11 = €14. The increase in costs reduces the unit margin to €14.Strategic implications of a 5% decrease in the industrial margin:A 5% decrease in the industrial margin would likely require a reassessment of the production or pricing strategy. Textile Innovant could consider reducing costs by optimizing its supply chain or increasing sales prices to maintain 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 |
| New PA HT after increase | PA HT + (PA HT x 10 ÷ 100) |
| New unit margin | PV HT – New PA HT |
Application: Ethical Fashion
States :
La Mode Éthique is an eco-friendly clothing brand that prides itself on creating sustainable, high-quality products. The company wants to analyze its sales margin on a new line of clothing made from organic cotton. The products are sold at a sales price excluding tax (SRP HT) of €80 per unit, and their purchase price excluding tax (PP HT) is €50 per unit. To better understand the profitability of its new products, La Mode Éthique would like you to calculate and analyze the sales margin as well as other financial indicators.
Work to do :
- Calculate the unit margin for a garment from this new line.
- Determine the overall margin earned if the company sells 100 units of this clothing line.
- Calculate the margin rate for this product line.
- Calculate the markup rate for these clothes.
- Analyze the impact of a 10% increase in purchase price on the margin rate, explaining the strategic implications for the company.
Proposed correction:
Calculate the unit margin for a garment from this new line.The unit margin is the difference between the sales price excluding tax (STP) and the purchase price excluding tax (PP). The formula used is: Unit margin = STP – PPSubstituting the values, we have: Unit margin = €80 – €50 = €30The unit margin for a garment in this new line is €30.
Determine the overall margin earned if the company sells 100 units of this clothing line.The overall margin is calculated by multiplying the unit margin by the quantity sold. The formula is: Overall margin = Unit margin x Quantity sold Using the given values: Overall margin = €30 x 100 = €3 If the company sells 000 units, the overall margin achieved is €100.
Calculate the margin rate for this product line.
The margin rate is calculated by dividing the unit margin by the purchase price excluding tax, then multiplying by 100 to obtain a percentage. The formula is:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Substituting the values:
Margin rate = ((€80 – €50) ÷ €50) x 100 = 60%
The margin rate for this product line is 60%.
Calculate the markup rate for these clothes.
The markup rate is calculated by dividing the unit margin by the selling price excluding tax, then multiplying by 100 to get a percentage. The formula is: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100 Using the given values: Markup rate = ((€80 – €50) ÷ €80) x 100 = 37,5% The markup rate for these garments is 37,5%.
Analyze the impact of a 10% increase in purchase price on the margin rate, explaining the strategic implications for the company.If the purchase price increases by 10%, the new net profit will be:New net profit = €50 + (€50 x 10 ÷ 100) = €55The new margin rate will be calculated using the formula:Margin rate = ((Net profit – New net profit) ÷ New net profit) x 100Margin rate = ((€80 – €55) ÷ €55) x 100 = 45,45%The increase in the purchase price reduces the margin rate to 45,45%. This means that the company must consider increasing its sales price or reducing its costs to maintain 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 |
| New PA HT | PA HT + (PA HT x 10 ÷ 100) |
| Margin rate after increase | ((PV HT – New PA HT) ÷ New PA HT) x 100 |
Application: Sophie's Treats
States :
Les Gourmandises de Sophie is an artisanal pastry shop located in the heart of Lyon. It offers a wide range of homemade cakes and pastries. Sophie, the owner, wants to better understand the profitability of her products and needs help calculating the commercial margin of some of her flagship products. Here is the data for the chocolate cake:
- Selling price excluding VAT: €25,00
- Purchase price excluding VAT: €15,00
- Quantity sold per month: 200 units
Work to do :
- Calculate the unit margin of the chocolate cake.
- What is the overall margin for monthly sales of this cake?
- Determine the margin rate for the chocolate cake.
- Calculate the markup rate for this same product.
- Analyze how a 10% increase in the pre-tax purchase price would affect the unit margin.
Proposed correction:
Calculate the unit margin of the chocolate cake.The unit margin is the difference between the sale price and the purchase price excluding tax. Unit margin = Sale price excluding tax – Purchase price excluding tax = €25,00 – €15,00 = €10,00. The unit margin for each chocolate cake is €10,00.
What is the overall margin for monthly sales of this cake?The overall margin is calculated by multiplying the unit margin by the quantity sold. Overall margin = Unit margin x Quantity sold = €10,00 x 200 = €2. The overall margin for monthly sales of chocolate cakes is €000,00.
Determine the margin rate for the chocolate cake.
The margin rate is calculated using the following formula:
Margin rate = ((Selling price excluding VAT – Purchase price excluding VAT) ÷ Purchase price excluding VAT) x 100.
Margin rate = ((€25,00 – €15,00) ÷ €15,00) x 100 = 66,67%.
The margin rate for chocolate cake is 66,67%.
Calculate the markup rate for this same product.The markup rate is determined by the formula: Markup rate = ((Selling price excluding VAT – Purchase price excluding VAT) ÷ Selling price excluding VAT) x 100. Markup rate = ((€25,00 – €15,00) ÷ €25,00) x 100 = 40%. The markup rate for chocolate cake is 40%.
Analyze how a 10% increase in the pre-tax purchase price would affect the unit margin.If the purchase price excluding VAT increases by 10%, the new purchase price excluding VAT will be:New purchase price excluding VAT = Purchase price excluding VAT + (10% x Purchase price excluding VAT) = €15,00 + (0,10 x €15,00) = €16,50.The new unit margin would be:New unit margin = Sale price excluding VAT – New purchase price excluding VAT = €25,00 – €16,50 = €8,50.With a 10% increase in the purchase price excluding VAT, the unit margin would decrease to €8,50.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | Sales price excluding tax – Purchase price excluding tax |
| Overall margin | Unit margin x Quantity sold |
| Margin rate | ((Selling price excluding tax – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100 |
| Brand taxes | ((Sales price excluding tax – Purchase price excluding tax) ÷ Sales price excluding tax) x 100 |
| New purchase price excluding VAT | Purchase price excluding VAT + (10% x Purchase price excluding VAT) |