How-to-calculate-total-commercial-margin

How to Calculate Total Trade Margin | 9 Exercises

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Application: Local Treats

States :

The company "Gourmandises du Coin" specializes in the sale of artisanal chocolates and confectionery in Lyon. It wants to evaluate its total commercial margin to optimize its sales operations. Last year, it sold 8 bags of chocolates at a unit sales price of €000 excluding VAT, with a unit purchase cost of €15 excluding VAT. It plans to increase sales by 10% this year.

Work to do :

  1. Calculate the unit margin for the chocolates sold.
  2. What is the total commercial margin achieved last year?
  3. Determine the new quantity expected for the current year considering the increase in sales.
  4. Calculate the total expected sales margin for the current year.
  5. Analyze the impact of increased sales on total sales margin.

Proposed correction:

  1. The unit margin is calculated by subtracting the unit purchase cost from the unit selling price:
    Unit margin = €15 – €10 = €5.
    Each bag sold generates a margin of €5.

  2. Last year's total sales margin is the unit margin multiplied by the quantity sold:
    Total sales margin = €5 x €8 = €000.
    Last year, the total commercial margin was €40.

  3. The new planned quantity, taking into account the 10% increase, is:

New quantity = 8 x (000 + 1) = 0,10.
This year, it plans to sell 8 bags.

  1. The total commercial margin expected for the current year is:
    Total expected sales margin = €5 x €8 = €800.
    This year, with the increase in sales, the total expected commercial margin is €44.

  2. The 10% increase in sales resulted in an increase in the total sales margin of €4. This shows that even a small increase in sales can significantly increase the total margin.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New quantity Initial quantity x (1 + Rate of increase)

Application: TecnoParadis

States :

"TechnoParadis", an online computer hardware sales company, wants to analyze the performance of its business in order to improve its sales strategy. Last year, the company sold 2 laptops at a unit price of €500 excluding VAT, with a purchase cost of €1 excluding VAT each. Management expects the purchase cost to decrease by 200% this year.

Work to do :

  1. Calculate the margin rate made when selling laptops.
  2. How much profit is made on each computer sold?
  3. Analyze the effect of a 5% decrease in purchase cost on the margin rate.
  4. Calculate the new expected total sales margin if the purchase cost decreases by 5% but sales remain constant.
  5. Discuss the strategic implications of this cost reduction on pricing policy.

Proposed correction:

  1. The margin rate is calculated by:
    Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100 = ((1 – 200) ÷ 950) x 950 = 100%.
    The margin rate on computers is 26,32%.

  2. The sales margin is the product of the number of units sold and the unit margin:
    Unit margin = €1 – €200 = €950.
    Thus, each computer sold generates a commercial margin of €250.

  3. If the purchase cost decreases by 5%, then the new purchase cost is:

New PA HT = 950 x (1 – 0,05) = €902,50.
New margin rate = ((1 – 200) ÷ 902,50) x 902,50 = 100%.
The decrease in the purchase cost increases the margin rate to 32,94%.

  1. Keeping the same number of units sold but applying the cost reduction:
    New total trade margin = €250 + (€47,50 x 2) = €500.
    The lower purchase cost results in an increased total margin of €748.

  2. Lower purchasing costs strengthen price competitiveness and allow a choice between maximizing margins or reducing prices to gain market share.

Formulas Used:

Title Formulas
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Unit margin PV HT – PA HT
New HT PA after decrease PA HT x (1 – Decrease in %)
New margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100
New trade margin (Old unit margin + Change unit margin) x Quantity sold

Application: EcoFashion

States :

EcoFashion is a company specializing in the sale of ethical clothing. It is currently evaluating its performance for the past year, where it sold 3 organic cotton jackets for a unit price of €000 excluding VAT. The purchase cost of each jacket is €120 excluding VAT. The company is considering reducing its selling price by 75% to boost sales and gain an edge over its competitors.

Work to do :

  1. Determine the current unit margin on each jacket.
  2. What is the total commercial margin achieved during the past year?
  3. Calculate the new unit selling price if the company applies the planned discount.
  4. What would be the new unit sales margin with the reduced price?
  5. Evaluate the financial implications of the reduction on the total margin, if EcoFashion plans to increase sales by 20%.

Proposed correction:

  1. The current unit margin is:
    Unit margin = €120 – €75 = €45.
    Each jacket sold generates a margin of €45.

  2. The total trade margin for the past year is:
    Total sales margin = €45 x €3 = €000.
    Last year, the total commercial margin was €135.

  3. The new unit selling price, after a 10% reduction, is:

New PV excluding tax = €120 x (1 – 0,10) = €108.
Each jacket will now sell for €108.

  1. The new unit margin with the reduced price would be:
    New unit margin = €108 – €75 = €33.
    With the price reduction, each jacket now generates a margin of €33.

  2. With a 20% increase in sales, the new total margin becomes:
    New expected quantity = 3 x (000 + 1) = 0,20.
    New total trade margin = €33 x €3 = €600.
    The price reduction boosts sales but reduces the total margin to €118.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PV HT PV HT x (1 – Reduction in %)
New unit margin New PV HT – PA HT
New quantity expected Initial quantity x (1 + Rate of increase)
New total trade margin New Unit Margin x New Expected Quantity

Application: Green Bicycle

States :

Bicyclette Verte, a company offering eco-friendly electric bikes, wants to analyze its profitability as it anticipates an increase in production costs. Over the past year, it sold 1 bikes, priced at €200 excluding VAT each, with a purchase cost of €2 excluding VAT. It fears an 500% increase in the purchase cost due to the tightening of regulations on raw materials.

Work to do :

  1. Calculate the current unit margin for each bike sold.
  2. What is the total commercial margin generated during the past year?
  3. Determine the new unit purchase cost taking into account the expected increase.
  4. What would be the margin rate after this increase if the selling price remains unchanged?
  5. Discuss possible strategies to maintain or increase the sales margin despite this cost increase.

Proposed correction:

  1. The current unit margin on bicycles is given by:
    Unit margin = €2 – €500 = €1.
    Each bike sold brings in a margin of €650.

  2. The total commercial margin achieved last year is:
    Total sales margin = €650 x €1 = €200.
    The total margin generated amounts to €780.

  3. The new unit purchase cost with an 8% increase will be:

New PA HT = €1 x (850 + 1) = €0,08.
Each bike will now cost €1.

  1. The new margin rate is:
    Margin rate = ((€2 – €500) ÷ €1) x 998 = 1%.
    The margin rate drops to 25,13% with the new cost.

  2. To counter rising costs, Bicyclette Verte could consider strategies such as improving processes to reduce waste, negotiating bulk production rates, or strategically increasing the selling price while communicating the quality and ecological aspect of the products.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PA HT PA HT x (1 + Increase in %)
Margin rate ((PV HT – New PA HT) ÷ New PA HT) x 100

Application: Natural Pharmacy

States :

Naturelle Pharmacie, a company specializing in the sale of natural health products, is facing increased competition. Last year, the company sold 5 units of a flagship dietary supplement for a unit price of €000 excluding VAT, with a purchase cost of €30 excluding VAT. For this year, the company plans to lower the selling price by €18 to boost sales and increase its market share.

Work to do :

  1. Calculate the current unit margin for each supplement sold.
  2. Determine the total sales margin for the past year.
  3. Calculate the new unit selling price after the discount.
  4. What will the unit margin be after the sales price reduction?
  5. Discuss the implications this price-cutting strategy might have on margins and market share.

Proposed correction:

  1. The current unit margin is:
    Unit margin = €30 – €18 = €12.
    Each unit sold generates a margin of €12.

  2. The total trade margin is:
    Total sales margin = €12 x €5 = €000.
    Total margins generated amount to €60 for the year.

  3. The new sale price after reduction becomes:

New sale price = €30 – €5 = €25.
Each supplement will be sold for €25.

  1. The new unit margin after reduction is:
    New unit margin = €25 – €18 = €7.
    Each unit sold will generate only €7 of margin.

  2. By lowering prices, the company hopes to increase sales volume and offset the decline in unit margin. This strategy could potentially increase market share if competitors do not respond in a similar manner, but it also carries the risk of a substantial decline in margins if sales volume does not grow sufficiently.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PV HT PV HT – Reduction
New unit margin New PV HT – PA HT

Application: Green Gardening

States :

Vert Jardinage, a company selling eco-friendly gardening tools, wants to review its margins across different product categories. Last year, it sold 2 pruning shears at a price of €200 excluding VAT per piece, with each piece costing €50 excluding VAT to purchase. Management is considering adding an additional 35% margin to the sales price for the current year.

Work to do :

  1. What is the unit margin achieved over the last year on these secateurs?
  2. Calculate the total sales margin made with these pruning shears last year.
  3. Determine the new unit selling price if a 10% margin surcharge is applied.
  4. What will be the new unit margin on each pruner with the increased margin?
  5. Determine the possible implications of this increase on the company's competitiveness.

Proposed correction:

  1. The unit margin is:
    Unit margin = €50 – €35 = €15.
    Each pruning shears sold generates a margin of €15.

  2. The total trade margin is calculated by:
    Total sales margin = €15 x €2 = €200.
    The company achieved a total margin of €33.

  3. The new unit selling price with a margin increased by 10% becomes:

New PV excluding tax = €50 x (1 + 0,10) = €55.
Each pruning shears will be sold for €55.

  1. The new unit margin after price increase is:
    New unit margin = €55 – €35 = €20.
    This makes a margin of €20 for each pruning shears sold.

  2. Increasing the selling price for a higher margin could make the product less competitive if competitors maintain their prices, however, it can also allow a valorization of the product if supported by an effective marketing strategy focused on the quality and durability of the tools offered.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PV HT PV HT x (1 + Additional margin %)
New unit margin New PV HT – PA HT

Application: Health & Well-Being

States :

The company "Santé & Bien-Être" offers a range of organic pharmaceutical products. In the previous year, it sold 7 organic herbal teas at a unit price of €000 excluding VAT, with each box costing €20 excluding VAT to purchase. Following a general increase in costs, it plans to increase the selling price by 13%. The aim is to maintain its margins while retaining its customer base.

Work to do :

  1. Calculate the current unit margin on each box of herbal tea.
  2. What is the total commercial margin achieved with these herbal teas?
  3. Determine the new unit selling price with a projected increase of 15%.
  4. What will be the new unit margin on each box after this increase?
  5. Analyze this strategic decision in terms of its impact on margin and its implication on the market.

Proposed correction:

  1. The current unit margin is:
    Unit margin = €20 – €13 = €7.
    Each box of herbal tea generates a margin of €7.

  2. The total commercial margin achieved is therefore:
    Total sales margin = €7 x €7 = €000.
    The total margin on herbal tea sales is €49.

  3. The new selling price with a 15% increase will be:

New PV excluding tax = €20 x (1 + 0,15) = €23.
Each herbal tea will now be sold for €23.

  1. The new unit margin becomes:
    New unit margin = €23 – €13 = €10.
    This represents a margin of €10 per box.

  2. The price increase allows Health & Wellness to recoup margins lost due to increased costs. However, consumer reaction will need to be monitored as a significant increase could reduce demand if customers do not perceive commensurate added value in the products.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PV HT PV HT x (1 + Increase in %)
New unit margin New PV HT – PA HT

Application: Tech & Comfort

States :

Tech & Confort, which specializes in ergonomic gadgets, achieved low margins on a high-end keyboard last year. Indeed, it was sold at €80 excluding VAT per unit, but the total cost associated with its production was €72. This year, the objective is to optimize the margin for this range without drastically changing the selling price.

Work to do :

  1. Calculate the current unit margin on this keyboard.
  2. What is the total sales margin if 3 keyboards were sold?
  3. If the cost of production is reduced by 12% through technological improvements, calculate the new unit cost.
  4. What would be the unit margin with this new cost while maintaining the selling price?
  5. Observe the usefulness of cost optimization on margins for the company.

Proposed correction:

  1. The current unit margin is:
    Unit margin = €80 – €72 = €8.
    Each keyboard sold generates a margin of €8.

  2. If 3 keyboards are sold, the total sales margin is:
    Total sales margin = €8 x €3 = €500.
    Sales generate a total margin of €28.

  3. With a 12% reduction in production cost:

New PA HT = €72 x (1 – 0,12) = €63,36.
The unit cost is then €63,36.

  1. The new unit margin taking into account the new cost is:
    New unit margin = €80 – €63,36 = €16,64.
    The margin per keyboard is thus optimized to €16,64.

  2. By improving the production process, the company can double its unit margin without changing its selling price. This shows how innovation in the manufacturing process positively impacts economic performance.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PA HT PA HT x (1 – Decrease in %)
New unit margin PV HT – New PA HT

Application: Zenith Furniture

States :

Zenith Furniture, known for its high-end designer furniture, is looking to consolidate its position in the luxury market. Over the past year, they have sold 600 leather sofas at a price of €3 excluding VAT each, with a purchase cost of €000 excluding VAT per sofa. Management aims to increase sales through diversification and aesthetic improvement while accepting a slight decrease in margins due to competition.

Work to do :

  1. Calculate the current unit margin for each sofa.
  2. What was the total commercial margin achieved with these sales?
  3. If the purchasing cost decreases by 4% due to agreements with a new supplier, what will the new purchasing cost be?
  4. Estimate the new unit margin with the decrease in the purchase cost, knowing that the selling price is maintained.
  5. Consider the possible benefits of integrating such a strategy for the business.

Proposed correction:

  1. The unit margin is initially:
    Unit margin = €3 – €000 = €2.
    Each sofa sold generates a margin of €900.

  2. The total sales margin on sofa sales is:
    Total sales margin = €900 x 600 = €540.
    A total of €540 is earned in margin.

  3. The new purchase cost with a 4% discount is:

New PA excluding tax = €2 x (100 – 1) = €0,04.
Each sofa will cost €2 to purchase.

  1. The new unit margin is then:
    New unit margin = €3 – €000 = €2.
    This increases the margin per sofa to €984.

  2. By developing new partnerships, Zénith Meubles can maintain its high-end positioning and its margins while diversifying its ranges, thus stably guaranteeing its competitive advantage in a demanding market.

Formulas Used:

Title Formulas
Unit margin PV HT – PA HT
Total trade margin Unit margin x Quantity sold
New PA HT PA HT x (1 – Decrease in %)
New unit margin PV HT – New PA HT

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