Welcome to this article on exercises on business calculations and more precisely on 11 corrected exercises on how to calculate the industrial margin. You will find here no less than 11 detailed corrected management exercises on commercial calculations for the Operational Management of the BTS MCO.
At the end of this article, you will know how to calculate industrial margin without any worries.
In this section:
- Application: Shoes of the Future
- Application: Ecological Toy Factory “LudikNature”
- Application: Fashion Stars
- Application: MetalInnov
- Application: Machining Performance
- Application: Innovative Textile
- Application: Ceramic Crafts
- Application: TechnoFabrik
- Application: Creative Sewing Workshop
- Application: Mecanotech Industries
- Application: The Adventure Factory
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: 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 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: 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.
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: Ceramic Crafts
States :
Céramique d'Artisanat is a company specializing in the manufacture of artisanal ceramic pieces. The company produces various objects, ranging from vases to plates, intended for a high-end clientele. To better understand the profitability of its operations, Céramique d'Artisanat wishes to analyze its industrial margin. The following data is available for the month of September:
- Cost of raw materials: €5
- Direct labor cost: €3
- Other direct production costs (energy, maintenance): €1
- Cost of machines and depreciation: €2
- Cost of packaging: €500
- Turnover excluding tax: €20
Céramique d’Artisanat wishes to determine the industrial margin to better guide its commercial strategy.
Work to do :
- Calculate the total production cost for the month of September.
- Determine the industrial margin using the net sales and the total production cost.
- What is the industrial margin rate? Express your answer as a percentage.
- If the company wants to increase its industrial margin by 10%, what should the new net sales be, assuming that costs remain constant?
- Analyze the strategic implications of improving the industrial margin for Ceramic Crafts.
Proposed correction:
Calculate the total production cost for the month of September.To determine the total production cost, we add up the different direct production costs:
- Cost of raw materials: €5
- Direct labor cost: €3
- Other direct production costs: €1
- Cost of machines and depreciation: €2
- Cost of packaging: €500
Total production cost = €5 + €000 + €3 + €500 + €1 = €500The total production cost for the month of September is €2.
Determine the industrial margin using the net sales and the total production cost.The industrial margin is calculated by subtracting the total production cost from the net turnover. Industrial margin = Net turnover – Total production cost = €20 – €000 = €12 The industrial margin for the month of September is €500.
What is the industrial margin rate? Express your answer as a percentage.
The industrial margin rate is calculated by dividing the industrial margin by the net turnover, then multiplying by 100 to obtain a percentage.
Industrial margin rate = (Industrial margin ÷ Net turnover) x 100 = (€7 ÷ €500) x 20 = 000%
The industrial margin rate is 37,5%.
If the company wants to increase its industrial margin by 10%, what should the new net sales be, assuming that costs remain constant?A 10% increase in the industrial margin would mean a margin of €7 x 500 = €1,10. New net turnover = Increased industrial margin + Total production cost = €8 + €250 = €8 To achieve this objective, the net turnover must be €250.
Analyze the strategic implications of improving the industrial margin for Ceramic Crafts.Improving the industrial margin would allow Céramique d'Artisanat to increase its net profits. This could provide leverage to invest in more advanced technologies, strengthen marketing or diversify the offer. In addition, a higher margin increases the financial resilience of the company in the face of possible economic shocks.
Formulas Used:
| Title | Formulas |
|---|---|
| Total production cost | Cost of raw materials + Cost of direct labor + Other direct production costs + Cost of machinery and depreciation + Cost of packaging |
| Industrial margin | Net sales – Total production cost |
| Industrial margin rate | (Industrial margin ÷ Net turnover) x 100 |
| New turnover excluding tax | Increased industrial margin + Total production cost |
Application: TechnoFabrik
States :
TechnoFabrik is a company specializing in the production of electronic components for the automotive industry. In 2023, the company produced 10 units of a specific component. The unit production cost is €000 excluding VAT, while the unit sales price is €30 excluding VAT. The company's annual fixed costs amount to €50.
TechnoFabrik wishes to analyze its industrial margin to better understand its financial performance and optimize its pricing and production strategies.
Work to do :
- Calculate TechnoFabrik's unit margin.
- Determine the overall margin made by TechnoFabrik on total production.
- Calculate TechnoFabrik's margin rate.
- Analyze the impact of a 5% increase in unit production cost on unit margin.
- Discuss the strategic implications of these findings for business management.
Proposed correction:
Unit margin:
Unit margin is calculated by subtracting the unit production cost from the unit selling price.
Unit margin = Unit selling price excluding VAT – Unit production cost excluding VAT.
Unit margin = €50 – €30 = €20.
TechnoFabrik's unit margin is €20 per unit.Overall margin:
The overall margin is obtained by multiplying the unit margin by the total quantity produced.
Overall margin = Unit margin x Quantity produced.
Total margin = €20 x €10 = €000.
The overall margin achieved by TechnoFabrik is €200.Margin rate:
The margin rate is calculated using the formula:
Margin rate = ((Unit selling price excluding VAT – Unit production cost excluding VAT) ÷ Unit production cost excluding VAT) x 100.
Margin rate = ((€50 – €30) ÷ €30) x 100 = 66,67%.
TechnoFabrik's margin rate is 66,67%.
Impact of an increase:
If the unit cost of production increases by 5%, the new unit cost will be:
New unit cost = €30 x 1,05 = €31,50.
New unit margin = Unit selling price excluding VAT – New unit cost.
New unit margin = €50 – €31,50 = €18,50.
With a 5% increase in unit cost, the new unit margin is €18,50.Strategic implications:
The results show a comfortable margin, but an increase in production costs reduces the unit margin, which can impact profitability. TechnoFabrik could consider optimizing its production processes, negotiating with suppliers to reduce costs or adjusting its sales prices to maintain profitability. A thorough cost and competition analysis is also recommended for informed strategic decisions.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | Unit selling price excluding VAT – Unit production cost excluding VAT |
| Overall margin | Unit margin x Quantity produced |
| Margin rate | ((Unit selling price excluding VAT – Unit production cost excluding VAT) ÷ Unit production cost excluding VAT) x 100 |
| New unit cost | Unit cost x 1,05 |
| New unit margin | Unit selling price excluding VAT – New unit cost |
Application: Creative Sewing Workshop
States :
Atelier de Couture Créatif is a company specializing in the design and manufacture of custom clothing. The company wants to improve its financial performance by better understanding its industrial margin. To do this, it has collected the following information on a dress model:
- Sales price excluding tax (PV HT): €150 per unit
- Unit cost price (cost of raw materials and manufacturing): €90 per unit
- Total annual fixed charges: €18
- Quantity produced and sold annually: 500 units
The Creative Couture Workshop seeks to analyze its industrial margin and its impact on the profitability of the company.
Work to do :
- Calculate the unit margin for each dress sold by Atelier de Couture Créatif.
- Determine the overall annual margin made by the company on this dress model.
- Calculate the unit margin rate for each dress.
- Analyze the impact of fixed costs on total industrial margin and discuss possible implications.
- Suggest a strategy that the company could adopt to improve its industrial margin.
Proposed correction:
Calculate the unit margin for each dress sold by Atelier de Couture Créatif.The unit margin is the difference between the selling price excluding tax (SVP HT) and the unit cost price. The formula for calculating the unit margin is as follows: Unit margin = SVP HT – Unit cost price Applying the given values, the unit margin is: Unit margin = €150 – €90 = €60
So the unit margin for each dress sold is €60.
Determine the overall annual margin made by the company on this dress model.To obtain the annual overall margin, multiply the unit margin by the quantity sold annually. The formula is: Overall margin = Unit margin x Quantity sold Using the figures provided: Overall margin = €60 x €500 = €30 The annual overall margin on this dress model is €000.
Calculate the unit margin rate for each dress.
The unit margin rate is calculated using the following formula:
Margin rate = ((PV HT – Unit cost price) ÷ Unit cost price) x 100
Substituting the values:
Margin rate = ((€150 – €90) ÷ €90) x 100 = (60 ÷ 90) x 100 ? 66,67%
The unit margin rate for each dress is therefore approximately 66,67%.
Analyze the impact of fixed costs on total industrial margin and discuss possible implications.Fixed costs represent a cost that the company must cover regardless of the volume of production. To understand their impact on the total industrial margin, we must subtract fixed costs from the overall margin:Total industrial margin = Overall margin – Fixed costsTotal industrial margin = €30 – €000 = €18
Fixed costs therefore reduce the total industrial margin to €12. This means that the company must sell a certain volume to cover its fixed costs before making a profit. If fixed costs increase, the company will either have to increase the volume of sales, increase its prices, or reduce its production costs to maintain profitability.
Suggest a strategy that the company could adopt to improve its industrial margin.To improve its industrial margin, the Creative Couture Workshop could consider the following strategies:
- Increase in the selling price : If the market allows, slightly increasing the selling price could increase the unit margin without increasing costs.
- Reduction of production costs : By optimizing manufacturing processes, negotiating better prices with raw material suppliers, or reducing waste, the company could reduce its cost price.
- Increase in sales volume : By investing in marketing or exploring new markets, the company could sell more units, thereby diluting the impact of fixed costs.
By adopting one or more of these strategies, the Creative Couture Workshop could improve its profitability and its industrial margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – Unit cost price |
| Overall margin | Unit margin x Quantity sold |
| Margin rate | ((PV HT – Unit cost price) ÷ Unit cost price) x 100 |
| Total industrial margin | Overall margin – Fixed charges |
Application: Mecanotech Industries
States :
Industries Mécanotech specializes in manufacturing high-precision mechanical parts for the automotive industry. It wants to improve its profitability and has decided to analyze its industrial margins in order to make strategic decisions. To do this, it needs to determine the industrial margin on several manufactured products. Here is the financial data for a flagship product:
- Unit manufacturing cost (raw materials, labor, energy): €150
- Unit sales price excluding tax (HT): €250
- Quantity sold: 1 units
- Total fixed cost for production: €20
Work to do :
- Calculate the unit gross margin for the product.
- Determine the total gross margin for all units sold.
- Calculate the total industrial margin taking into account fixed costs.
- Analyze the unit gross margin rate.
- Discuss the strategic implications if the company decides to increase the selling price by 10%.
Proposed correction:
Calculate the unit gross margin for the product.
The unit gross margin is the difference between the selling price excluding tax (SVP HT) and the unit manufacturing cost (MP HT). Formula: Unit gross margin = SVP HT – MP HT Calculation: €250 – €150 = €100. The unit gross margin for each product is €100.
Determine the total gross margin for all units sold.The total gross margin is obtained by multiplying the unit gross margin by the quantity sold. Formula: Total gross margin = Unit gross margin x Quantity sold Calculation: €100 x 1 = €000. The total gross margin for all units sold is €100.
Calculate the total industrial margin taking into account fixed costs.
Total industrial margin is total gross margin minus fixed costs.
Formula: Total industrial margin = Total gross margin – Fixed costs
Calculation: €100 – €000 = €20.
The total industrial margin, after deduction of fixed costs, is €80.
Analyze the unit gross margin rate.
The gross margin rate per unit is calculated by dividing the gross margin per unit by the selling price excluding tax, then multiplying by 100 to obtain a percentage. Formula: Margin rate = (Gross margin per unit ÷ PV excluding tax) x 100 Calculation: (€100 ÷ €250) x 100 = 40%. The gross margin rate per unit is 40%, indicating good profitability per product sold.
Discuss the strategic implications if the company decides to increase the selling price by 10%.A 10% increase in the selling price means that the new selling price would be €250 + (€250 x 0,10) = €275. The new gross margin per unit would then be €275 – €150 = €125. With an increased gross margin per unit, the total industrial margin would increase, which could strengthen the profitability of the company, provided that the increase in price does not decrease demand.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit gross margin | PV HT – PA HT |
| Total gross margin | Gross margin per unit x Quantity sold |
| Total industrial margin | Total Gross Margin – Fixed Costs |
| Margin rate | (Unit gross margin ÷ PV HT) x 100 |
| New sale price | PV HT + (PV HT x Percentage increase) |
Application: The Adventure Factory
States :
La Fabrique d'Aventures is a company specializing in the creation of educational board games. To better understand its financial performance, it wishes to analyze the industrial margin of its flagship product, the game "Explorations Infinies". You have the following information:
- Unit production cost: €15 excluding VAT
- Unit sale price: €30 excluding VAT
- Quantity sold: 1 units
- Total fixed cost for production: €5
- Total variable cost: €18
The company is wondering how these elements contribute to its industrial margin and would like to obtain a detailed analysis.
Work to do :
- Calculate the unit margin of the game “Infinite Explorations”.
- Determine the overall margin made by the company on this product.
- Evaluate the impact of fixed costs on the industrial margin.
- Analyze how a 10% increase in production costs would affect unit margin.
- Propose a strategy to improve industrial margin while maintaining product quality.
Proposed correction:
Calculation of unit margin:The unit margin is the difference between the unit selling price excluding tax (SVP HT) and the unit production cost excluding tax (CP HT). The formula is: Unit margin = SVP HT – CP HT. Using the data provided: Unit margin = €30 – €15 = €15. The unit margin for the game is €15, which means that for each unit sold, the company makes a profit of €15.
Calculation of the overall margin:The overall margin is calculated by multiplying the unit margin by the quantity sold. The formula is: Overall margin = Unit margin x Quantity sold. With our data: Overall margin = €15 x €1 = €200. The company makes an overall margin of €18 on the product “Explorations Infinies”.
Impact of fixed costs on industrial margin:
To understand the impact of fixed costs, it is important to consider their proportion to the overall margin.
Total fixed cost = €5.
To evaluate, we can subtract fixed costs from the overall margin:
Margin after fixed costs = Total margin – Total fixed cost = €18 – €000 = €5.
After taking into account fixed costs, the industrial margin is €13, showing that fixed costs significantly reduce the industrial margin.
Impact of a 10% increase in production costs on unit margin:If production costs increase by 10%, the new unit production cost is:New unit production cost = €15 + (€15 x 10 ÷ 100) = €16,50.The new unit margin becomes:Unit margin = €30 – €16,50 = €13,50.A 10% increase in production costs reduces the unit margin to €13,50, potentially affecting profitability.
Strategy to improve industrial margin:
To improve the manufacturing margin, the company might consider reducing production costs by optimizing manufacturing processes. Another strategy might be to gradually increase the selling price, while adding additional features or values to the product to justify the price increase. A cost analysis might also reveal opportunities to reduce fixed or variable costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
| Margin after fixed costs | Overall Margin – Total Fixed Cost |
| New unit production cost | Unit Production Cost + (Unit Production Cost x Percentage Increase ÷ 100) |
| New unit margin | PV HT – New unit production cost |