In this section:
Application: Modern Designs
States :
Conceptions Modernes is a company specializing in high-end fashion. It is preparing to launch a new range of handbags. Each bag has a purchase price excluding tax (PA HT) of €80. The company wants to determine its margins in order to set the appropriate selling price. Financial objectives include a margin rate of 40% and a brand rate of 28%. The target quantity to be sold for this campaign is 500 units.
Work to do :
- Calculate the sales price excluding tax (SPT) required to achieve a margin rate of 40%.
- Determine the sales price excluding tax (SVP HT) if the company wants a markup rate of 28%.
- If the PV excluding tax is set at €125, calculate the unit margin.
- Calculate the overall margin if the company sells 500 units at a selling price of €125.
- Analyze the financial implications if the company wants to increase its overall margin by 10% and discuss possible strategies to achieve this.
Proposed correction:
-
To achieve a margin rate of 40%, we use the formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, 40 = ((PV HT – 80) ÷ 80) x 100.
PV excluding tax = (40 ÷ 100) x 80 + 80 = €112.
The company must set a PV excluding tax of €112 to obtain a margin rate of 40%. -
For a markup rate of 28%, the formula to use is:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substituting, 28 = ((PV HT – 80) ÷ PV HT) x 100.
PV excluding tax = 80 ÷ (1 – 0,28) = €111,11.
The selling price for a markup rate of 28% should be €111,11. -
With a PV excluding tax of €125, the unit margin is:
Unit margin = PV HT – PA HT = 125 – 80 = 45 €.
Each bag sold will generate a margin of €45.
-
For the overall margin, we have:
Overall margin = Unit margin x Quantity sold = 45 x 500 = €22.
The sale of 500 bags at €125 each generates an overall margin of €22. -
To increase the overall margin by 10%, this means a new overall margin of €24 (€750 + €22).
Possible strategies: increase the selling price, reduce purchasing costs or try to improve productivity to sell more units.
A thorough market and cost analysis can help choose the best strategy.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
Application: TechnoSolutions
States :
TechnoSolutions is a company aiming to innovate in the technology sector. It wants to market a new interactive screen for schools. The purchase cost excluding VAT is €150. The company wants to set a PV excluding VAT reflecting a margin rate of 30%. It also needs to calculate the unit margin and the overall margin expected for an initial order of 300 units.
Work to do :
- Determine the sales price excluding tax (PV HT) to obtain a margin rate of 30%.
- What would be the unit margin for a sales price determined at €210?
- Calculate the overall margin for a sale of 300 screens at a price of €200 each.
- Analyze the financial impact of a 5% reduction in the initially planned selling price.
- Discuss possible actions to maintain the overall margin level following this price reduction.
Proposed correction:
-
The formula for calculating the PV HT with a margin rate of 30%:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, 30 = ((PV HT – 150) ÷ 150) x 100.
PV excluding tax = (30 ÷ 100) x 150 + 150 = €195.
The price must be set at €195 to obtain a 30% margin. -
For a PV excluding tax of €210, the unit margin is:
Unit margin = PV HT – PA HT = 210 – 150 = 60 €.
Each screen sold generates a margin of €60. -
The formula for the overall margin is:
Overall margin = Unit margin x Quantity sold.
Here, Unit Margin = 200 – 150 = €50.
Overall margin = 50 x 300 = €15.
By selling 300 screens at €200 each, a total margin of €15 is generated.
-
If the sale price is reduced by 5% from €195:
New PV excluding tax = 195 – (195 x 0,05) = €185,25.
The modified unit margin = 185,25 – 150 = €35,25.
Reducing the price would therefore negatively affect the margin if no adjustment is made. -
To compensate for this 5% reduction, TechnoSolutions could explore options such as reducing purchasing costs through economies of scale, increasing sales volumes to dilute fixed costs, or improving the supply chain to reduce operational costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
Application: BioNutra
States :
BioNutra, a food company specializing in organic products, is considering a new granola product. The cost of purchasing the ingredients excluding VAT is €3 per box. The company is targeting a 25% markup rate for its direct sales channel, while planning to sell 2 boxes at launch.
Work to do :
- Calculate the sales price excluding tax (SVP HT) required to obtain a markup rate of 25%.
- If the markup rate actually reaches 20%, what would be the actual selling price?
- Estimate the unit margin if the PV excluding tax is set at €4,50.
- Calculate the overall margin for a total sale of 2 boxes at a price of €000.
- Identify the issues if BioNutra decided to reduce the purchase cost to €2,80 while maintaining the overall margin initially planned.
Proposed correction:
-
Formula for a 25% markup rate:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Therefore, 25 = ((PV HT – 3) ÷ PV HT) x 100.
PV excluding tax = 3 ÷ (1 – 0,25) = €4.
For a markup rate of 25%, the PV excluding tax must be €4. -
If the markup rate is 20%, the formula is the same:
20 = ((PV excluding tax – 3) ÷ PV excluding tax) x 100.
PV excluding tax = 3 ÷ (1 – 0,20) = €3,75.
The sale price would be €3,75 with a markup rate of 20%. -
With a PV excluding tax of €4,50, the unit margin is calculated as follows:
Unit margin = PV HT – PA HT = 4,50 – 3 = 1,50 €.
Each box sold brings a margin of €1,50.
-
For the overall margin:
Overall margin = Unit margin x Quantity sold = 1,50 x 2 = €000.
The sale of 2 boxes generates a total margin of €000. -
By reducing the purchase cost to €2,80, while maintaining the same overall margin:
New unit margin = €1,50, i.e. a PV excluding tax = €2,80 + €1,50 = €4,30.
BioNutra can then choose to lower the selling price to be more competitive while maintaining its margin.
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 sold |
Application: GreenTech Innovations
States :
GreenTech Innovations is a start-up specializing in renewable energies. It wants to launch a new solar panel. The production cost excluding tax is €500. The company aims for a margin rate of 50% while targeting a sale of 1000 units next year.
Work to do :
- Determine the sales price excluding tax (PV HT) for a margin rate of 50%.
- Calculate the unit margin if the PV excluding tax is set at €800.
- What would be the overall margin for a sale of 1 units at a price of €000 per unit?
- If other companies enter the market, what could be the implications on GreenTech's overall margin?
- Suggest possible strategies that GreenTech could adopt to maintain its margin in the event of a market price decline.
Proposed correction:
-
Calculation of the PV HT for a margin rate of 50%:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
50 = ((PV excluding VAT – 500) ÷ 500) x 100.
PV excluding tax = (50 ÷ 100) x 500 + 500 = €750.
The selling price should be €750 for a 50% margin. -
If the PV excluding tax is €800, the unit margin will be:
Unit margin = PV HT – PA HT = 800 – 500 = 300 €.
Each panel sold generates a margin of €300. -
For the overall margin with a sale of €800:
Overall margin = Unit margin x Quantity sold = 300 x 1 = €000.
The total sale would bring in a margin of €300.
-
The entry of new firms could lead to an automatic drop in prices due to increased competition.
GreenTech could see its overall margin shrink unless it adapts its strategy. -
To maintain its margins, GreenTech could improve the efficiency of its production, diversify its products or target new markets where competition is less fierce.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
Application: Artsy Creations
States :
Artsy Creations, an interior design company, is planning to offer a new collection of handmade lamps. The manufacturing cost excluding VAT is €45 per lamp. The company is aiming for a mark-up rate of 35% and hopes to sell 150 units at the first exhibition.
Work to do :
- Calculate the sales price excluding tax (SPT) required to achieve a markup rate of 35%.
- Determine the unit margin if the lamp is sold at €70.
- Calculate the overall margin for the exhibition of 150 lamps sold at €70 each.
- Analyze the financial implications if production were increased to 200 units, with a 10% decrease in manufacturing cost.
- Suggest interventions that the company could carry out to maximize the profitability of this new collection.
Proposed correction:
-
For a markup rate of 35%, use the formula:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
35 = ((PV excluding tax – 45) ÷ PV excluding tax) x 100.
PV excluding tax = 45 ÷ (1 – 0,35) = €69,23.
The PV excluding tax must be €69,23 to reach a markup rate of 35%. -
If sold at €70, the unit margin is:
Unit margin = PV HT – PA HT = 70 – 45 = 25 €.
Each sale brings in a margin of €25. -
For 150 lamps sold at €70:
Overall margin = Unit margin x Quantity sold = 25 x 150 = €3.
The total margin for the exhibition is €3.
-
With an increase to 200 units and a 10% reduction in manufacturing cost (cost = €40,5):
If sold at €70, new unit margin = €70 – €40,5 = €29,5.
New overall margin = 29,5 x 200 = €5.
Reduced production cost and increased sales often translate into increased overall margin. -
Artsy Creations could focus on reducing costs, optimizing the manufacturing process, strengthening marketing to increase sales or considering partnerships to increase its visibility.
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 sold |
Application: Fit & Fab
States :
Fit & Fab is an innovative company in the sports nutrition sector and wants to launch a new energy drink. The production cost excluding VAT is €2,50 per bottle. The company's objective is to set a sales price with a margin rate of 60%, aiming to sell 10 bottles in the first quarter.
Work to do :
- What is the sales price excluding tax (SVP) required to obtain a margin rate of 60%?
- If Fit & Fab decides to set the PV excluding tax at €6, what would the unit margin be?
- Calculate the overall margin for selling 10 bottles at a price of €000 each.
- Consider the financial implications of a reduced production cost of €0,50 while maintaining the initial PV excluding VAT.
- Suggest initiatives that Fit & Fab could undertake to optimize its profitability in the face of strong competition in this market.
Proposed correction:
-
To determine the PV HT with a margin of 60%, apply:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
60 = ((PV excluding VAT – 2,50) ÷ 2,50) x 100.
PV excluding tax = (60 ÷ 100) x 2,50 + 2,50 = €4.
The required PV excluding tax is €4 to ensure a margin of 60%. -
With a PV excluding tax of €6, the unit margin is:
Unit margin = PV HT – PA HT = 6 – 2,50 = 3,50 €.
The sale of each bottle generates a margin of €3,50. -
For a sale of 10 bottles at €000:
Overall margin = Unit margin x Quantity sold = 3,50 x 10 = €000.
The sale would therefore bring in a margin of €35.
-
If the production cost decreases to €2 while keeping the PV excluding tax at €6:
New unit margin = 6 – 2 = €4.
This would lead to a new overall margin of €40 (000 x 4).
A cost reduction directly increases the profit margin for the company. -
To optimize profitability, Fit & Fab could explore optimizing its supply chain to further reduce costs, introduce product innovations to differentiate itself in the market, or develop its digital presence to capture a wider audience.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
Application: UrbanCycles
States :
UrbanCycles, an urban electric bike company, is preparing to launch a new model. The average manufacturing cost excluding VAT is €600. The company is aiming for a 40% markup and plans to sell 500 units in the first year.
Work to do :
- Calculate the appropriate tax-free selling price (TPS) for a 40% markup rate.
- Determine the unit margin if the bike is sold for €1.
- Estimate the overall margin for a total sale of 500 bikes at a price of €1 each.
- Discuss the possible effects of reducing the cost of production by 15% while maintaining the projected selling price.
- Formulate proposals for UrbanCycles to strengthen its competitive position in the market.
Proposed correction:
-
To get a 40% markup rate, use:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
40 = ((PV excluding tax – 600) ÷ PV excluding tax) x 100.
PV excluding tax = 600 ÷ (1 – 0,40) = €1.
The PV excluding tax must be €1 to reach this mark rate. -
For a price of €1, the unit margin will be:
Unit margin = PV excluding tax – PA excluding tax = 1 – 000 = €600.
Each unit sold brings a unit margin of €400. -
With a sale of 500 bikes at this price:
Overall margin = Unit margin x Quantity sold = 400 x 500 = €200.
The projected overall margin reaches €200.
-
Reducing the cost of production by 15% would lower this cost to €510:
New unit margin = 1 – 000 = €510.
This change would improve margins, resulting in a new overall margin of €245. -
UrbanCycles could focus on improving product innovation, developing strategic partnerships for materials sourcing, and amplifying its digital marketing efforts to capture greater market share.
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 sold |
Application: Meridiem Foodtrucks
States :
Méridiem Foodtrucks is expanding with its latest fast food truck. The cost of preparing dishes excluding VAT is €4 on average per unit. The company hopes to achieve a margin rate of 75% while aiming to sell 5 dishes during the summer season.
Work to do :
- What should be the sales price excluding tax (SVP HT) for a margin rate of 75%?
- Calculate the unit margin if each dish is sold at €10.
- What will be the overall margin for a total sale of 5 dishes at €000 each?
- Evaluate the financial benefits for Méridiem of adopting suppliers offering a €0,50 reduction on procurement costs.
- Considering these benefits, identify key strategies to increase customer satisfaction and build customer loyalty.
Proposed correction:
-
For a margin rate of 75%, the formula is:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
75 = ((PV excluding VAT – 4) ÷ 4) x 100.
PV excluding tax = (75 ÷ 100) x 4 + 4 = €7.
The sale price should be €7. -
With a selling price of €10, the unit margin is:
Unit margin = PV HT – PA HT = 10 – 4 = 6 €.
Each dish sold brings in a margin of €6. -
The overall margin for 5 dishes sold is:
Overall margin = Unit margin x Quantity sold = 6 x 5 = €000.
So the total expected margin is €30.
-
If the supply cost is reduced by €0,50, new cost = €3,50:
New unit margin = 10 – 3,50 = €6,50.
The overall margin would increase to €32.
These cost savings increase margins and can be reinvested. -
Méridiem could invest in initiatives such as improved customer service, meal customization, special offers to build customer loyalty, and engaging local events to ensure customer retention and increase sales.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
Application: Eco-Educational
States :
Eco-Educatives is an organization that produces eco-friendly school supplies. They want to introduce a new notebook made from recycled paper. The production cost excluding VAT is €1,20 per notebook. The company is planning a mark-up rate of 45% and hopes to sell 8 notebooks for the start of the school year.
Work to do :
- Determine the sales price excluding tax (SVP HT) to achieve a markup rate of 45%.
- If the selling price is set at €2,50, what would the unit margin be?
- Estimate the overall margin for a sale of 8 notebooks at a unit price of €000.
- Analyze the impact on margin if a 10% discount is applied to school customers.
- Suggest areas for improvement Eco-Educational could continue to strengthen their eco-responsible image while increasing margins.
Proposed correction:
-
Calculation of the PV excluding tax for a markup rate of 45%:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
45 = ((PV excluding tax – 1,20) ÷ PV excluding tax) x 100.
PV excluding tax = 1,20 ÷ (1 – 0,45) = €2,18.
The required PV excluding tax is €2,18. -
With a selling price of €2,50, the unit margin is calculated as follows:
Unit margin = PV HT – PA HT = 2,50 – 1,20 = 1,30 €.
Each notebook sold generates a unit margin of €1,30. -
For a sale of 8 notebooks:
Overall margin = Unit margin x Quantity sold = 1,30 x 8 = €000.
The total margin would amount to €10.
-
In case of a 10% discount, the sale price increases to €2,25:
New unit margin = 2,25 – 1,20 = €1,05.
New overall margin = 1,05 x 8 = €000.
The discount therefore negatively impacts the overall margin. -
Eco-Educatives could invest in environmental certification, promote educational partnerships that highlight eco-design, and create communication campaigns illustrating the positive impact of their products to raise consumer awareness while increasing sales.
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 sold |