How-to-calculate-specific-cost-margin

How to Calculate Specific Cost Margin | 9 Exercises

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Application: Creative Ceramics Workshop

States :

Atelier Céramique Créative manufactures ceramic objects such as vases and bowls. They want to assess the profitability of each type of object by calculating the margin on specific cost. During the last quarter, the company recorded the following figures: sales of vases amounted to €15 including tax for an estimated specific production cost of €000 and a fixed operational cost of €8. Sales of bowls amounted to €000 including tax with a specific cost of €2 and a fixed cost of €500.

Work to do :

  1. Calculate the turnover excluding tax (HT) for sales of vases.
  2. Determine the specific cost margin for the vases.
  3. Calculate the turnover excluding tax (HT) for the bowls.
  4. Find out the specific cost margin of the bowls.
  5. Analyze which product line, vases or bowls, is more profitable and explain why.

Proposed correction:

  1. To calculate the net sales, we must first remove the VAT from the sales. The VAT is 20%.
    The turnover excluding tax for the vases = €15 ÷ 000 = €1,20.
    The turnover excluding tax for the vases is €12.

  2. The margin on specific cost for vases is calculated by subtracting the specific production cost from the net sales figure.
    Margin on specific cost for vases = €12 – €500 = €8.
    The specific cost margin for vases is €4.

  3. Similarly, for bowls, let's calculate the net sales from the sales including tax.

The turnover excluding tax for the bowls = €10 ÷ 000 = €1,20.
The net turnover for the bowls is €8.

  1. The specific cost margin for bowls is calculated by subtracting the specific production cost from the net sales.
    Margin on specific cost for bowls = €8 – €333,33 = €5.
    The specific cost margin for the bowls is €2.

  2. To analyze profitability, let's compare the margins on specific cost. The vases have a margin on specific cost of €4, while the bowls have €500.
    In conclusion, vases are more cost effective than bowls.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Futuristic Electronic Store

States :

Futuristic Electronics Store sells electronic gadgets such as smartwatches and wireless headphones. They must evaluate the performance of each category by calculating their specific cost margin. The latest quarterly report shows that smartwatch sales brought in €30 including tax, with a specific cost of €000 and associated fixed costs of €18. Wireless headphones generated €000 including tax with a specific production cost of €5 and fixed costs of €000.

Work to do :

  1. Determine the net sales figure for smartwatches.
  2. Calculate the specific cost margin for smartwatches.
  3. Find the net sales figure for wireless headphones.
  4. Establish the specific cost margin of wireless headphones.
  5. Interpret the results and indicate which product has better financial performance.

Proposed correction:

  1. Let's remove the 20% VAT to find the net turnover of smartwatches.
    Net sales for watches = €30 ÷ 000 = €1,20.
    The turnover excluding tax for smartwatches is €25.

  2. The margin on specific cost is obtained by subtracting the specific cost from the net turnover.
    Margin on specific cost of watches = €25 – €000 = €18.
    The margin on the specific cost of smartwatches is €7.

  3. Let’s calculate the net sales for wireless headphones.

Sales excluding tax for headphones = €25 ÷ 000 = €1,20.
The net sales of wireless headphones are €20.

  1. The specific cost margin for headphones is as follows:
    Margin on specific cost of headphones = €20 – €833,33 = €12.
    The specific cost margin for wireless headphones is €8.

  2. When comparing margins, wireless headphones have a higher specific cost margin (€8) than smartwatches (€333,33).
    So, although the revenue is lower, wireless headphones perform better financially than watches.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Urban Organic Farms

States :

Urban Organic Farms produces and sells freshly grown agricultural products in an urban environment. They want to understand the profitability of their two flagship products: green vegetable baskets and aromatic herb provisions. Vegetable basket sales amount to €8 including tax with a specific cost of €000, while aromatic herbs bring in €4 including tax for a specific cost of €200.

Work to do :

  1. Calculate the net sales of green vegetable baskets.
  2. Evaluate the specific cost margin for vegetable baskets.
  3. Determine the net turnover of aromatic herbs.
  4. Calculate the margin on the specific cost of aromatic herbs.
  5. Discuss the profitability of green vegetable baskets versus aromatic herbs and justify your analysis.

Proposed correction:

  1. For green vegetable baskets, let's remove the VAT (20%).
    Turnover excluding tax for vegetables = €8 ÷ 000 = €1,20.
    The net turnover for green vegetable baskets is €6.

  2. The margin on specific cost is the net sales minus the specific cost.
    Margin on specific cost for vegetables = €6 – €666,67 = €4.
    The margin for green vegetable baskets is €2.

  3. Let’s calculate the net sales for herbs.

Turnover excluding tax for herbs = €5 ÷ 500 = €1,20.
The turnover excluding tax for aromatic herbs is €4.

  1. The specific cost margin for aromatic herbs:
    Margin on specific cost for herbs = €4 – €583,33 = €2.
    The margin on the specific cost of aromatic herbs is €1.

  2. Comparing the two margins, green vegetable baskets have a higher margin (€2) compared to aromatic herbs (€466,67).
    Thus, green vegetable baskets are more profitable than aromatic herbs for the company.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Organic Harmony Cosmetics

States :

Cosmétique Bio Harmonie manufactures natural beauty products. They want to check the profitability of their moisturizer and organic shampoo. Sales of moisturizer amount to €20 including tax for a specific cost of €000. The organic shampoo, on the other hand, brings in €12 including tax with a specific cost of €000.

Work to do :

  1. Calculate the net sales for the moisturizer.
  2. Determine the specific cost margin for the moisturizer.
  3. Find the turnover excluding tax for organic shampoo.
  4. Evaluate the specific cost margin of organic shampoo.
  5. Discuss the impact of choosing one or the other product on the company's development strategy.

Proposed correction:

  1. Let's start with the turnover excluding tax of the moisturizer, removing the 20% VAT.
    Net sales for the cream = €20 ÷ 000 = €1,20.
    The turnover excluding tax for the moisturizer is €16.

  2. Margin on specific cost calculated simply: net turnover minus specific cost.
    Moisturizing margin = €16 – €666,67 = €12.
    The specific cost margin for the moisturizer is €4.

  3. The turnover excluding tax for shampoo is calculated as follows:

Shampoo turnover excluding tax = €15 ÷ 000 = €1,20.
The turnover excluding tax for organic shampoo is €12.

  1. Let’s calculate the specific cost margin for organic shampoo:
    Shampoo margin = €12 – €500 = €7.
    The margin on the specific cost of organic shampoo is €5.

  2. Although the moisturizer generates more total revenue, the organic shampoo has a higher margin (€5) than the cream (€000).
    Choosing to further develop organic shampoo could strategically strengthen the company's short-term profitability.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Flavors of the World

States :

Saveurs du Monde, a culinary company, produces exclusive preserves such as truffle sauces and vegetarian caviars. During the last half-year, the company sold sauces for €12 including tax, with a specific cost of €000, and caviars for €6 including tax with a specific cost of €000.

Work to do :

  1. Determine the net sales figure for truffle sauces.
  2. Evaluate the specific cost margin for truffle sauces.
  3. Calculate the net sales for vegetarian caviars.
  4. Determine the specific cost margin for vegetarian caviars.
  5. Analyze the effectiveness of possible strategic choices to maximize profit.

Proposed correction:

  1. Let’s calculate the turnover excluding tax for sauces by removing VAT.
    Turnover excluding tax for sauces = €12 ÷ 000 = €1,20.
    The turnover excluding tax for truffle sauces is €10.

  2. Margin for truffle sauces:
    Margin on specific cost of sauces = €10 – €000 = €6.
    The specific cost margin for truffle sauces is €4.

  3. Calculation of turnover excluding VAT for caviar by removing VAT:

Caviar turnover excluding tax = €9 ÷ 000 = €1,20.
The turnover excluding tax for vegetarian caviars is €7.

  1. The specific cost margin for caviars:
    Margin on specific cost of caviar = €7 – €500 = €3.
    The margin on the specific cost of vegetarian caviars is €4.

  2. Let's analyze: Although sauces have a higher turnover, caviars generate a higher margin (€4).
    Focusing expansion on caviar could optimize profits with a more favorable margin for the future.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Ethical Shine Jewelry

States :

Bijoux Éthiques Brillance sells necklaces made from recycled silver and bracelets made from natural pearls. The necklaces generated a turnover of €5 including tax, with a specific operating cost of €500, while the bracelets brought in €2 including tax with a specific cost of €750.

Work to do :

  1. Calculate the net sales for silver necklaces.
  2. Deduct the specific cost margin for the collars.
  3. Establish the net sales figure for the bracelets.
  4. Find the specific cost margin of the bracelets.
  5. Propose recommendations for the strategic direction of the company based on the previous calculations.

Proposed correction:

  1. We must first find the net turnover for the necklaces by removing the VAT.
    Turnover excluding tax for necklaces = €5 ÷ 500 = €1,20.
    The turnover excluding tax for silver necklaces is €4.

  2. Margin for necklaces:
    Margin on specific cost of collars = €4 – €583,33 = €2.
    The specific cost margin for the collars is €1.

  3. Let's calculate the net turnover for the bracelets by removing the VAT:

Turnover excluding tax for bracelets = €8 ÷ 000 = €1,20.
The net turnover for pearl bracelets is €6.

  1. Margin on specific cost for bracelets:
    Margin on specific cost of bracelets = €6 – €666,67 = €3.
    The specific cost margin for bracelets is €3.

  2. Based on previous margins, although necklaces have a lower income, bracelets obtain a higher margin (€3).
    For the sake of maximizing profits, directing efforts towards extending the bracelet line would be strategically wise.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Nature+ Green Spaces

States :

Espaces Verts Nature+ offers landscaping solutions and the sale of gardening kits. In the last year, the company sold landscaping for €40 including tax (specific cost of €000) and kits for €25 including tax (specific cost of €000).

Work to do :

  1. Determine the net sales figure for landscaping.
  2. Calculate the specific cost margin for the developments.
  3. Estimate the net sales for gardening kits.
  4. Calculate the margin on specific cost of gardening kits.
  5. Analyze the impact of margins on the company's marketing strategy.

Proposed correction:

  1. Let's remove the VAT to obtain the net turnover of landscaping.
    Turnover excluding tax for developments = €40 ÷ 000 = €1,20.
    The turnover excluding tax for landscaping is €33.

  2. The margin on specific cost for the developments is calculated as follows:
    Margin on specific cost of developments = €33 – €333,33 = €25.
    The margin on specific cost for the developments is €8.

  3. Turnover excluding VAT for gardening kits excluding VAT:

Sales excluding VAT for kits = €18 ÷ 000 = €1,20.
The turnover excluding tax for gardening kits is €15.

  1. Specific cost margin for gardening kits:
    Margin on specific cost of kits = €15 – €000 = €10.
    The specific cost margin for gardening kits is €5.

  2. The margins reveal that the improvements offer better performance (€8).
    By opting for a marketing focus on amenities, the company could maximize its profits while strengthening its brand image.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Innovative Design Furniture

States :

Mobilier Design Innovant manufactures ergonomic chairs and multifunctional desks. For the last half year, chair sales reached €16 including VAT with a specific cost of €800, while desks generated €9 including VAT with a specific cost of €800.

Work to do :

  1. Calculate the net sales for ergonomic chairs.
  2. Determine the specific cost margin for the chairs.
  3. Find the net sales figure for multifunctional offices.
  4. Deduct the margin on specific office cost.
  5. Recommend product strategy based on financial results.

Proposed correction:

  1. To obtain the net turnover of ergonomic chairs, let's remove the VAT.
    Turnover excluding tax for chairs = €16 ÷ 800 = €1,20.
    The turnover excluding tax for ergonomic chairs is €14.

  2. Margin on specific cost for chairs:
    Margin on specific cost of chairs = €14 – €000 = €9.
    The specific cost margin for ergonomic chairs is €4.

  3. Let's estimate the turnover excluding tax for offices:

Office turnover excluding tax = €21 ÷ 600 = €1,20.
The turnover excluding tax for multifunctional offices is €18.

  1. Margin for multifunctional offices:
    Margin on specific office cost = €18 – €000 = €13.
    The specific cost margin for multifunctional offices is €4.

  2. The offices have a slight lead in terms of margin (€4).
    Promoting the development of multifunctional offices could ensure stable growth and a better market position.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

Application: Techno-Recycler Clothing

States :

Techno-Recycler Clothing specializes in the manufacture of t-shirts made from recycled fibers and pants made from innovative fabrics. The last quarter saw sales of t-shirts reach €10 including tax with a specific cost of €000 and sales of pants for €5 including tax with a specific cost of €200.

Work to do :

  1. Establish the net sales of t-shirts.
  2. Calculate the specific cost margin for t-shirts.
  3. Get the net sales figure for trousers.
  4. Calculate the margin on the specific cost of the pants.
  5. Analyze how these results can influence the future ecological direction of the company.

Proposed correction:

  1. The net turnover of t-shirts is calculated as follows by removing VAT:
    Turnover excluding tax for t-shirts = €10 ÷ 000 = €1,20.
    The turnover excluding tax for t-shirts is €8.

  2. Let's calculate the specific cost margin for t-shirts:
    Margin on specific cost of t-shirts = €8 – €333,33 = €5.
    The specific cost margin for t-shirts is €3.

  3. The assessment of the net turnover for trousers is made as follows:

Sales excluding tax for trousers = €14 ÷ 400 = €1,20.
The turnover excluding tax for the trousers is €12.

  1. Calculation of the margin on specific cost for trousers:
    Margin on specific cost of trousers = €12 – €000 = €7.
    The specific cost margin for trousers is €4.

  2. Although both T-shirts and pants are eco-focused, pants carry a more robust margin (€4).
    Thus, focusing innovations and developments on trousers could support long-term sustainability and enable the company to compete competitively in the green market.

Formulas Used:

Title Formulas
Turnover excluding tax Turnover including tax ÷ 1,20
Margin on specific cost Turnover excluding tax – Specific cost

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