In this section:
Application: Le Croissant Doré Bakery
States :
The bakery "Le Croissant Doré" located in Nantes wants to optimize its purchases in order to minimize its costs while maximizing its profits. It plans to buy butter in large volumes and wants to calculate the tolerance margin on its purchasing costs. The price of butter is €8 per kilogram and the bakery faces an estimated consumption of 200 kg per month. Due to fluctuations in the prices of raw materials, the bakery wants to know its tolerance margin on a possible price variation of 10%.
Work to do :
- Calculate the total initial monthly cost for purchasing butter.
- Determine the possible change in monthly cost if the price of butter increases by 10%.
- What would be the tolerance margin as a percentage of the initial cost?
- Evaluate the impact on the bakery's overall budget if the price of butter changes by 10%.
- What would you recommend to the bakery to manage this tolerance margin effectively?
Proposed correction:
-
The initial monthly total cost for purchasing butter is obtained by the formula
: Total Cost = Price per kg x Quantity.
By replacing: €8 x 200 kg = €1600.
The total initial monthly cost is therefore €1600. -
To determine the variation in the event of a 10% increase, use: Variation = Price per kg x Quantity x (1 + Variation).
By replacing: €8 x 200 kg x (1 + 0,10) = €1760.
The possible variation of the monthly cost is €1760. -
The percentage tolerance margin is calculated by: Tolerance Margin = ((Cost with Variation – Initial Cost) ÷ Initial Cost) x 100.
Replacing: ((€1760 – €1600) ÷ €1600) x 100 = 10%.
The tolerance margin is 10%.
-
The impact on the overall budget is that the additional cost is €1760 – €1600 = €160.
This additional cost must be taken into account in the overall budget of the bakery. -
To manage this tolerance margin, it is recommended to consider long-term contracts with suppliers to stabilize prices or to purchase larger quantities when prices are low.
Formulas Used:
| Title | Formulas |
|---|---|
| Total cost | Price per kg x Quantity |
| Variation | Price per kg x Quantity x (1 + Variation) |
| Margin of Tolerance | ((Cost with Variation – Initial Cost) ÷ Initial Cost) x 100 |
Application: TechSolutions
States :
TechSolutions is a company specializing in IT equipment. As the annual technology fair approaches, it wants to calculate the price tolerance for a new server model. The initial sales price is €3000 excluding VAT per unit. TechSolutions estimates that a fluctuation of 5% is possible due to the volatility of electronic component costs.
Work to do :
- Calculate the possible selling price in the event of a fluctuation of +5%.
- Calculate the possible selling price in the event of a fluctuation of -5%.
- Determine the tolerance margin in euros.
- What would be the impact on TechSolutions' net margin with this 5% fluctuation?
- Explain how TechSolutions could use the results to adjust its business strategy during the show.
Proposed correction:
-
The possible sale price in case of +5% is calculated: Price +5% = Initial Price x (1 + 0,05).
Replacing: €3000 x (1 + 0,05) = €3150.
The selling price with a 5% increase would be €3150. -
The possible sale price in case of -5% is calculated: Price -5% = Initial Price x (1 – 0,05).
Replacing: €3000 x (1 – 0,05) = €2850.
The sale price with a 5% reduction would be €2850. -
The tolerance margin in euros is the maximum possible difference between the modified price and the initial price.
Calculate: Margin = |€3150 – €3000| = €150.
The tolerance margin is therefore €150.
-
If the price drops by 5%, revenue and therefore net margin per server could decrease, which could impact profitability if other costs are not reduced.
-
TechSolutions can use these results to develop a flexible pricing strategy, make promotional offers during the show or set a floor price to avoid eroding its margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Price +5% | Initial Price x (1 + 0,05) |
| Price -5% | Initial Price x (1 – 0,05) |
| Margin of Tolerance |
Application: The House of Organic Flavors
States :
La Maison des Saveurs Bio sells organic food products through its e-commerce. It is considering including a new product, organic olive oil, at a recommended retail price of €12 for 500 ml. Subject to a possible 15% reduction for the annual sales, it is seeking to determine the tolerance margin.
Work to do :
- Calculate the sale price after applying the 15% discount.
- What is the percentage change from the initial price?
- If the cost of purchasing olive oil is €8, calculate the gross margin after discount.
- What is the tolerance margin in terms of percentage of the initial gross margin?
- Discuss the implications of this price reduction for the company's pricing strategy.
Proposed correction:
-
The sale price after 15% reduction is calculated: Reduced Price = Recommended Price x (1 – 0,15).
Replacing: €12 x (1 – 0,15) = €10,20.
After reduction, the sale price would be €10,20. -
The percentage change is calculated: Change (%) = ((Reduced Price – Initial Price) ÷ Initial Price) x 100.
Replacing: ((€10,20 – €12) ÷ €12) x 100 = -15%.
The reduction is therefore equivalent to a 15% decrease in the initial price. -
The gross margin after reduction is: Reduced Gross Margin = Reduced Price – Purchase Cost.
Replacing: €10,20 – €8 = €2,20.
The gross margin after reduction is €2,20.
-
The tolerance margin in terms of percentage of the initial gross margin is calculated as follows: ((Reduced Margin – Initial Margin) ÷ Initial Margin) x 100.
Initially, the gross margin was: €12 – €8 = €4, so ((€2,20 – €4) ÷ €4) x 100 = -45%.
The tolerance margin relative to the initial margin is therefore -45%. -
To minimize the impact of the reduction on margins, the company should consider compensating through increased sales volumes or reductions in internal costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Reduced Price | Recommended Price x (1 – 0,15) |
| Change (%) | ((Reduced Price – Initial Price) ÷ Initial Price) x 100 |
| Reduced Gross Margin | Reduced Price – Purchase Cost |
| Margin of Tolerance | ((Reduced Margin – Initial Margin) ÷ Initial Margin) x 100 |
Application: Sportive Ventures
States :
Sportive Ventures is an online sports equipment sales company, which is evaluating its pricing policy for a new line of running shoes. The production cost of a pair is €50, and the expected retail price is €85 excluding VAT with a possible 10% reduction in the event of a special promotion.
Work to do :
- Determine the selling price if a 10% discount is applied.
- Calculate the unit margin before and after the reduction.
- What is the percentage difference between the two unit margins, before and after reduction?
- What is the tolerance margin in euros, taking into account this possible reduction?
- Advise Sportive Ventures on the feasibility of such reductions while maintaining their desired margin.
Proposed correction:
-
The sale price after 10% reduction is calculated: Reduced Price = Initial Price x (1 – 0,10).
Replacing: €85 x (1 – 0,10) = €76,50.
The sale price would therefore be €76,50. -
The unit margin before reduction is: Margin Before = Initial Price – Production Cost.
Replacing: €85 – €50 = €35.
After reduction: Margin After = Reduced Price – Production Cost = €76,50 – €50 = €26,50.
The margins become €35 and €26,50 respectively. -
The percentage difference between the margins is: Variation (%) = ((Margin After – Margin Before) ÷ Margin Before) x 100.
Replacing: ((€26,50 – €35) ÷ €35) x 100 = -24,29%.
There is therefore a drop of 24,29% in the unit margin.
-
The tolerance margin in euros with respect to the initial margin is calculated as: Difference in € = Margin Before – Margin After = €35 – €26,50 = €8,50.
This tolerance margin is therefore €8,50. -
Sportive Ventures should evaluate whether the potential increase in sales offsets this 24,29% drop in margin, especially if they consider additional costs for promotion.
Formulas Used:
| Title | Formulas |
|---|---|
| Reduced Price | Initial Price x (1 – 0,10) |
| Front Margin | Initial Price – Production Cost |
| Margin After | Reduced Price – Production Cost |
| Change (%) | ((Margin After – Margin Before) ÷ Margin Before) x 100 |
| Tolerance Margin (€) | Margin Before – Margin After |
Application: EcoMobility
States :
ÉcoMobilité, a startup specializing in electric bicycles, wants to analyze the impact of price fluctuations on its new product range. The initial sale price is set at €1500 excluding VAT and the production cost is €1100. The company wants to know its tolerance margin in the event of a price variation of 8%, either upwards or downwards.
Work to do :
- Calculate the selling price if an 8% increase is applied.
- Calculate the sale price if an 8% discount is applied.
- Determine the unit margin after a price increase and after a price reduction.
- What is the tolerance margin in percentage terms between the two possible modifying margins?
- Discuss the strategic implications that this price modulation could have for EcoMobility.
Proposed correction:
-
The selling price with an 8% increase is calculated: Increased Price = Initial Price x (1 + 0,08).
Replacing: €1500 x (1 + 0,08) = €1620.
The new sale price would be €1620. -
The sale price after 8% reduction is calculated: Reduced Price = Initial Price x (1 – 0,08).
Replacing: €1500 x (1 – 0,08) = €1380.
The sale price became €1380. -
Margin after increase: Increased Margin = €1620 – €1100 = €520.
Margin after reduction: Reduced Margin = €1380 – €1100 = €280.
The calculated unit margin becomes €520 and €280.
-
The tolerance margin is found by: Variation (%) = ((Increased Margin – Decreased Margin) ÷ Decreased Margin) x 100.
Replacing: ((€520 – €280) ÷ €280) x 100 = 85,71%.
Thus, the tolerance allows up to 85,71% change within the margin. -
EcoMobility can use these results to compare pricing strategies and gauge the volume effect versus margins to optimize profitability based on price and market variations.
Formulas Used:
| Title | Formulas |
|---|---|
| Price Increased | Initial Price x (1 + 0,08) |
| Reduced Price | Initial Price x (1 – 0,08) |
| Increased Margin | Increased Price – Production Cost |
| Reduced Margin | Reduced Price – Production Cost |
| Change (%) | ((Increased Margin – Decreased Margin) ÷ Decreased Margin) x 100 |
Application: Solarium Design
States :
Solarium Design, a specialist in high-end outdoor furniture, is launching a new designer armchair at a retail price of €400 excluding VAT. The production cost is €250 per unit. The company wants to determine the tolerance margin if it plans to vary the retail price by 12% up or down.
Work to do :
- Calculate the new selling price if there is a 12% increase.
- Calculate the new selling price if there is a 12% reduction.
- Calculate the gross margin after price increase and decrease.
- What strategic considerations should Solarium Design make in relation to these margins and prices?
- How could the price variation influence Solarium Design's brand image in the market?
Proposed correction:
-
The selling price with a 12% increase will be: Increased Price = Initial Price x (1 + 0,12).
Replacing: €400 x (1 + 0,12) = €448.
So the sale price becomes €448. -
The sale price with a 12% discount will be: Reduced Price = Initial Price x (1 – 0,12).
Replacing: €400 x (1 – 0,12) = €352.
So the sale price becomes €352. -
Margin after increase: Increased Margin = €448 – €250 = €198.
Margin after reduction: Reduced Margin = €352 – €250 = €102.
The new margins are €198 and €102, respectively.
-
Solarium Design must analyze the relationship between price, margin and customer perceptions to determine the optimal pricing strategy taking into account competition and customer expectations.
-
Due to the quality of its products, price variation must be carefully aligned with the customer's perception of value so as not to harm the brand's premium image.
Formulas Used:
| Title | Formulas |
|---|---|
| Price Increased | Initial Price x (1 + 0,12) |
| Reduced Price | Initial Price x (1 – 0,12) |
| Increased Margin | Increased Price – Production Cost |
| Reduced Margin | Reduced Price – Production Cost |
Application: Green Solutions
States :
Green Solutions, an innovative company in the solar energy sector, plans to launch a new photovoltaic solar panel with an announced sale price of €2500 excluding VAT. Since fluctuations in the energy market are unpredictable, it wants to calculate its tolerance margin for a possible price variation of 7%.
Work to do :
- Calculate the new selling price if a 7% increase is applied.
- Calculate the new selling price if a 7% discount is applied.
- Determine the relative percentage difference between the increased and decreased unit margin.
- Assess the financial stability of Green Solutions in this price variation scenario.
- What strategic impact could this have on the competitiveness of Green Solutions on the market?
Proposed correction:
-
The selling price after a 7% increase is determined: Increased Price = Initial Price x (1 + 0,07).
Replacing: €2500 x (1 + 0,07) = €2675.
The sale price would therefore be €2675. -
The sale price after a 7% discount is determined: Reduced Price = Initial Price x (1 – 0,07).
Replacing: €2500 x (1 – 0,07) = €2325.
The sale price would therefore be €2325. -
Let's assume a production cost of €1800, let's calculate the margin:
Increased Margin: €2675 – €1800 = €875.
Reduced Margin: €2325 – €1800 = €525.
Difference: ((€875 – €525) ÷ €525) x 100 = 66,67%.
So there is a margin tolerance of 66,67%.
-
With such a high tolerance, Green Solutions has the ability to manage cost volatility, although this requires sufficient financial capacity to absorb potential losses.
-
To maintain a competitive position, Green Solutions must be prepared to react to market trends and potentially adapt its offerings without compromising its financially strategic margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Price Increased | Initial Price x (1 + 0,07) |
| Reduced Price | Initial Price x (1 – 0,07) |
| Increased Margin | Increased Price – Production Cost |
| Reduced Margin | Reduced Price – Production Cost |
| Difference % | ((Increased Margin – Decreased Margin) ÷ Decreased Margin) x 100 |
Application: Moda Chic
States :
Moda Chic, a textile company for haute couture clothing, likes to know the tolerance margin for a new limited edition coat, whose retail price is set at €1200. Management suggests a possible price increase or decrease of 9% depending on demand and textile costs.
Work to do :
- Determine the selling price if the price increases by 9%.
- Determine the selling price if the price decreases by 9%.
- Calculate the initial margin if the production cost is €800, then after adjustment.
- Calculate the tolerance gap in euros and as a percentage between the adjusted margins.
- Advise Moda Chic on pricing management and potential impact on brand perception.
Proposed correction:
-
The selling price with a 9% increase is: Increased Price = Initial Price x (1 + 0,09).
Replacing: €1200 x (1 + 0,09) = €1308.
The price increases to €1308. -
The selling price with a 9% decrease is: Reduced Price = Initial Price x (1 – 0,09).
Replacing: €1200 x (1 – 0,09) = €1092.
The price drops to €1092. -
Initial Margin: €1200 – €800 = €400.
Increased Margin: €1308 – €800 = €508.
Reduced Margin: €1092 – €800 = €292.
-
Difference in €: €508 – €292 = €216.
Difference in %: ((€508 – €292) ÷ €292) x 100 = 73,97%. -
Moda Chic must balance price reductions to boost sales while maintaining a luxury brand image, this may require a re-evaluation of promotions and communication campaigns to protect the luxury concept.
Formulas Used:
| Title | Formulas |
|---|---|
| Price Increased | Initial Price x (1 + 0,09) |
| Reduced Price | Initial Price x (1 – 0,09) |
| Initial Margin | Initial Price – Production Cost |
| Increased Margin | Increased Price – Production Cost |
| Reduced Margin | Reduced Price – Production Cost |
| Gap % | ((Increased Margin – Decreased Margin) ÷ Decreased Margin) x 100 |
Application: BiblioTech
States :
BiblioTech is a young software publisher for library management. It wants to launch a new application on the market, planned at €500 excluding VAT. Anticipating fluctuations due to technological developments, it is now considering tolerance margin calculations.
Work to do :
- Calculate the selling price if the price increases by 6%.
- Calculate the selling price if the price drops by 6%.
- If the development costs are €350, first calculate the current margin, then adjust it.
- What is the tolerance margin in absolute and relative terms?
- Advise BiblioTech on strategic pricing positioning in this changing context.
Proposed correction:
-
The price increasing by 6% will be: Increased Price = Initial Price x (1 + 0,06).
Replacing: €500 x (1 + 0,06) = €530.
The new price is €530. -
The price reduced by 6% will be: Reduced Price = Initial Price x (1 – 0,06).
Replacing: €500 x (1 – 0,06) = €470.
The new price is €470. -
Current Margin: €500 – €350 = €150.
Margin after increase: €530 – €350 = €180.
Margin after reduction: €470 – €350 = €120.
-
Difference in €: €180 – €120 = €60.
Difference in %: ((€180 – €120) ÷ €120) x 100 = 50%. -
BiblioTech must set a price taking into account cost and customer perceived value to maintain its competitive advantage while remaining flexible in the face of technological fluctuations.
Formulas Used:
| Title | Formulas |
|---|---|
| Price Increased | Initial Price x (1 + 0,06) |
| Reduced Price | Initial Price x (1 – 0,06) |
| Current Margin | Initial Price – Development Cost |
| Increased Margin | Increased Price – Development Cost |
| Reduced Margin | Reduced Price – Development Cost |
| Gap % | ((Increased Margin – Decreased Margin) ÷ Decreased Margin) x 100 |