In this section:
- Application: Beauty Flash
- Application: Bistro Bon Appétit
- Application: TechGizmo Inc.
- Application: Wines and Chateaux
- Application: Alliance Mode
- Application: Gymn'O'Fit
- Application: Magic Games SARL
- Application: La Fournée Bakery
- Application: Authentic Furniture
- Application: Flavors of the Sea
- Application: Serenity Spa
Application: Beauty Flash
States :
Eclair Beauté, a cosmetics company located in Lyon, has just introduced a new line of moisturizers. The company wants to determine contribution margins to better understand its profitability. Here are the key data on a specific cream:
- Unit sale price excluding VAT: €25
- Unit variable cost: €10
- Monthly sales quantity: 3 units
Management also wants to analyze various scenarios to maximize profits.
Work to do :
- Calculate the unit variable cost margin for a moisturizer.
- Determine the total monthly variable cost margin.
- Analyze the effect on the total variable cost margin if the unit selling price is reduced by €2.
- If the variable cost decreases by €1, calculate the new monthly variable cost margin.
- Discuss the importance of contribution margin for strategic decision making.
Proposed correction:
The unit variable cost margin is calculated by subtracting the unit variable cost from the unit selling price.
Margin on unit variable cost = €25 – €10 = €15
The margin on unit variable cost for each cream is €15.
The total variable cost margin is obtained by multiplying the unit margin by the quantity sold.
Total margin = €15 x €3 = €000
The monthly variable cost margin amounts to €45.
If the selling price is reduced to €23, the new unit margin is:
New unit margin = €23 – €10 = €13
New total margin = €13 x €3 = €000
The margin on variable cost would decrease to €39 with a drop in the selling price.
With a variable cost reduced to €9, the new unit margin is:
New unit margin after reduction = €25 – €9 = €16
New total margin = €16 x €3 = €000
A reduction in variable cost increases the variable cost margin to €48.
Contribution margin is crucial for assessing the immediate profitability of a product. It helps identify products that contribute the most to covering fixed costs and realizing net profits. It is a key indicator for assessing the short-term viability of new pricing or cost-cutting strategies.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Unit selling price excluding VAT – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Quantity sold |
Application: Bistro Bon Appétit
States :
Bistro Bon Appétit, a gourmet restaurant in Paris, wants to analyze the margin on variable cost of its star dish: pan-fried beef fillet with mushrooms. Here is the information for preparing a dish:
- Selling price: €40
- Variable cost: €25
- Number of dishes sold per day: 50
As part of a marketing campaign, management considers several actions.
Work to do :
- Calculate the unit variable cost margin for beef fillet.
- Estimate the daily variable cost margin.
- Determine the impact on the daily margin if the variable cost increases by €5.
- If a promotion sells 10 additional dishes per day, what would be the resulting daily margin?
- Explain the effect of increasing the contribution margin on the restaurant's competitiveness.
Proposed correction:
For the margin on unit variable cost:
Margin on unit variable cost = €40 – €25 = €15
Each fillet of beef generates a unit margin of €15.
For the daily variable cost margin:
Daily margin = €15 x 50 = €750
The daily variable cost margin is €750.
If variable costs increase to €30, the margin becomes:
New unit margin = €40 – €30 = €10
New daily margin = €10 x 50 = €500
An increase in variable costs reduces the daily margin to €500.
With 60 dishes sold, the margin will be:
New daily margin = €15 x 60 = €900
Selling 10 additional dishes increases the margin to €900.
Increasing the contribution margin improves the restaurant's ability to reduce prices, offer promotions and reinvest in culinary improvements, thereby strengthening its competitiveness.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Unit selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Number of dishes sold |
Application: TechGizmo Inc.
States :
TechGizmo Inc., a Berlin-based electronic gadget company, has launched a new tablet model. To optimize its financial projections, it wants to evaluate the contribution margin. Here are the details for the tablet:
- Selling price: €300
- Variable cost: €180
- Expected monthly sales: 2 units
In order to remain competitive, the company is considering different business tactics.
Work to do :
- Calculate the unit variable cost margin for the tablet.
- Determine the total monthly variable cost margin.
- If the variable cost is reduced by €20, what will be the new margin on unit variable cost?
- Explore the impact on total margin if monthly sales increase by 500 units.
- Comment on the importance of contribution margin for managing technological innovations.
Proposed correction:
The margin on unit variable cost is calculated as follows:
Margin on unit variable cost = €300 – €180 = €120
Each tablet sold brings in a margin of €120.
The total monthly variable cost margin is:
Total margin = €120 x €2 = €000
The total monthly margin is €240.
If the variable cost is reduced to €160, the new margin will be:
New unit margin = €300 – €160 = €140
A reduction in costs increases the unit margin to €140.
With an increase in sales to 2 units, the monthly margin becomes:
New monthly margin = €120 x 2 = €500
Increasing sales by 500 units brings the total margin to €300.
Contribution margin is essential in technology to finance research and development, thus enabling continuous product evolution and sustainable competitive advantage.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Unit selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Monthly sales |
Application: Wines and Chateaux
States :
Vins et Châteaux, a distributor of rare wines in Bordeaux, wants to analyze the cost structure of its bottle of “Grand Cru Classé”. Here is the data for a box of 6 bottles:
- Retail price of the box: €360
- Variable cost per bottle: €45
- Number of boxes sold per month: 500
In order to adjust its business strategy, management wishes to deepen its financial analysis.
Work to do :
- Calculate the margin on unit variable cost per bottle.
- Determine the total monthly variable cost margin for all boxes.
- What will be the effect on the unit margin if the selling price increases by €5 per bottle?
- Estimate the new total margin if the variable cost decreases by €3 per bottle.
- Analyze the potential impact of an increase in contribution margin on sales.
Proposed correction:
The margin on variable cost per bottle is calculated as follows:
Selling price per bottle = €360 ÷ 6 = €60
Margin on unit variable cost per bottle = €60 – €45 = €15The unit margin per bottle is €15.
To calculate the total variable cost margin:
Total monthly margin = €15 x 6 x 500 = €45
The total margin for the months is €45.
If the selling price increases by €5 per bottle, the new calculation is:
New selling price per bottle = €65
New unit margin = €65 – €45 = €20
The unit margin would increase to €20.
With a variable cost reduced to €42, the new margin per bottle is:
New unit margin = €60 – €42 = €18
New total margin = €18 x 6 x 500 = €54Reducing variable costs brings the total margin to €54.
Increasing contribution margin allows the company to better manage market fluctuations, invest in marketing and improve customer relationships, thereby stimulating more robust sales.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price per bottle | Selling price of the box ÷ Number of bottles |
| Margin on unit variable cost | Selling price per bottle – Variable cost per bottle |
| Total variable cost margin | Margin on unit variable cost per bottle x Number of bottles x Number of boxes |
Application: Alliance Mode
States :
Mode Alliance, a high-end clothing brand in Milan, wants to know the contribution margin for its new summer dress line. Here is the information for one dress:
- Selling price: €150
- Variable cost: €70
- Estimated monthly sales: 1 units
The company plans to adjust its margins to improve its performance.
Work to do :
- Calculate the unit variable cost margin for each summer dress.
- Estimate the total monthly variable cost margin for all dresses.
- How would the unit margin be affected if the selling price was lowered by €10?
- If sales increased by 15%, calculate the new total monthly margin.
- Discuss how contribution margin management influences market positioning.
Proposed correction:
The margin on unit variable cost is calculated as follows:
Unit margin = €150 – €70 = €80
Each dress brings in a unit margin of €80.
For the total variable cost margin:
Total monthly margin = €80 x €1 = €200
The total monthly margin for dresses is €96.
If the sale price drops to €140, the margin is calculated:
New unit margin = €140 – €70 = €70
The unit margin would decrease to €70.
With a 15% increase, sales would be 1 units:
New total margin = €80 x €1 = €380
Increasing sales by 15% would bring the total margin to €110.
Effective management of variable cost margin allows Mode Alliance to quickly adjust its pricing and cost strategies to respond to market trends, strengthening its competitive position.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Quantity sold |
Application: Gymn'O'Fit
States :
Gymn'O'Fit, a fitness studio in London, has recently launched an exclusive fitness program. Here is the data associated with registering for this program:
- Registration fee: €200
- Variable cost per registration: €80
- Number of monthly registrations: 150
The management team must re-evaluate its margins to optimize profits.
Work to do :
- Calculate the unit variable cost margin generated by each registration.
- Determine the total monthly variable cost margin.
- If the variable cost increases by €10, what is the new margin on unit variable cost?
- Explore the impact of a €20 registration fee reduction on total margins if registrations increase by 20%.
- Analyze how a constant adaptation of the margin on variable cost allows Gymn'O'Fit to retain its customers.
Proposed correction:
The margin on unit variable cost is obtained as follows:
Unit margin = €200 – €80 = €120
Each registration generates a unit margin of €120.
The total monthly variable cost margin is calculated by:
Total monthly margin = €120 x 150 = €18
The total monthly margin is €18.
If the variable cost increases to €90, the new unit margin is:
New unit margin = €200 – €90 = €110
An increase in costs reduces the unit margin to €110.
A reduction of €20 on the price results in a new unit margin:
New registration price = €180
New unit margin = €180 – €80 = €100With a 20% increase in registrations (180 registrants), the total margin is:
New total margin = €100 x 180 = €18
Despite the price reduction, the increase in registrations stabilizes the margin at €18.
Proactively adapting the variable cost margin allows Gymn'O'Fit to offer attractive promotions while maintaining a loyalty relationship with its members, thus ensuring dynamic and healthy competition.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Registration price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Number of registrations |
Application: Magic Games SARL
States :
Jeux Magiques SARL, a toy store based in Barcelona, is about to evaluate the contribution margin of its new line of educational games. Here are the key data by game:
- Selling price: €35
- Variable cost: €21
- Weekly quantity sold: 400
The company also wants to explore possible adjustments for better performance.
Work to do :
- Calculate the unit variable cost margin for each game.
- Estimate the total weekly variable cost margin.
- What would be the effect on the unit margin if the selling price increased by €3?
- If demand increases by 10% as a result of an advertising campaign, estimate the new total margin.
- Examine the long-term impact of contribution margins on product expansion strategies at Jeux Magiques SARL.
Proposed correction:
The margin on unit variable cost is calculated as follows:
Unit margin = €35 – €21 = €14
Each game generates a unit margin of €14.
The total weekly variable cost margin is:
Total weekly margin = €14 x 400 = €5
The weekly variable cost margin is €5.
With a price increase, the new unit margin calculation is:
New sale price = €38
New unit margin = €38 – €21 = €17
The unit margin would increase to €17.
With a 10% increase in demand, the quantity sold becomes 440:
New total margin = €14 x 440 = €6
An increase in sales through advertising would increase the total margin to €6.
Strategic management of variable cost margin allows Jeux Magiques SARL to continually innovate, expand its product range and remain relevant in a constantly changing toy market.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Weekly quantity sold |
Application: La Fournée Bakery
States :
La Fournée bakery in Geneva has launched a brand new pastry: the caramel mille-feuille. The bakery wants to calculate the margin on variable cost to better manage its recipes. Here are the key figures:
- Selling price: €6
- Variable cost: €3,50
- Daily sales: 150 units
As part of its diversification plan, the establishment is considering various pricing options.
Work to do :
- Calculate the unit variable cost margin for the mille-feuille.
- Determine the total daily variable cost margin.
- If the variable cost decreases by €0,30, what is the new unit margin?
- Explain the impact on the total margin if the number of sales increases by 25%.
- Analyze the implications of variable cost margin management in the development of new pastry products.
Proposed correction:
The margin on unit variable cost is as follows:
Unit margin = €6 – €3,50 = €2,50
Each mille-feuille sold gives a margin of €2,50.
The total daily variable cost margin:
Total daily margin = €2,50 x 150 = €375
The bakery makes a daily margin of €375.
If the variable cost is reduced to €3,20, the new unit margin is:
New unit margin = €6 – €3,20 = €2,80
Reducing the cost increases the unit margin to €2,80.
With a 25% increase in sales:
New volumes = 150 + (0,25 x 150) = 187,5 rounded to 188
New total margin = €2,50 x 188 = €470
A 25% increase in sales would raise the margin to €470.
Effective management of contribution margin helps support innovation and new product launches, thereby improving the bakery's competitiveness in the demanding market for high-end pastries.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Daily sales |
Application: Authentic Furniture
States :
Meubles Authentiques, a chain of furniture stores in Brussels, wants to evaluate the margin on variable cost of its new range of leather armchairs. Here are the relevant data:
- Selling price: €450
- Variable cost: €270
- Expected monthly sales: 300 units
Management wants to see more clearly the margins available for different marketing actions.
Work to do :
- Calculate the unit variable cost margin for each chair.
- Evaluate the total monthly variable cost margin.
- With a variable cost increase of €30, what happens to the unit margin?
- If a €50 discount on the sales price boosts sales by 10%, estimate the new impact on the total margin.
- Evaluate the importance of contribution margin in Authentic Furniture's marketing decisions.
Proposed correction:
The margin on unit variable cost is:
Unit margin = €450 – €270 = €180
Each chair sold brings a unit margin of €180.
The total monthly variable cost margin is:
Total margin = €180 x 300 = €54
The monthly margin is €54.
If the variable cost becomes €300, the new unit margin:
New unit margin = €450 – €300 = €150
An increase in costs reduces the unit margin to €150.
With a price reduction, the unit margin becomes:
New unit price = €400
New unit margin = €400 – €270 = €130With a 10% increase in sales:
New sales = 330
New total margin = €130 x 330 = €42A price reduction and an increase in sales changes the margin to €42.
Contribution margin helps management clearly visualize profitability, effectively manage price reductions, and customize promotional campaigns to maximize profit impact.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Monthly sales |
Application: Flavors of the Sea
States :
Saveurs de la Mer, a seafood caterer in Barcelona, wants to calculate the variable cost margin of its new seafood platter offering. Here are the details:
- Selling price: €75
- Variable cost: €45
- Weekly sales: 80
Management is considering different promotional strategies and wants to understand their possible effects on margin.
Work to do :
- Calculate the unit variable cost margin for each tray.
- Estimate the total weekly variable cost margin.
- Estimate the new unit margin if the selling price increases to €70.
- If sales volume increases by 25% due to a promotion, what would be the new total margin?
- Discuss the impact of the variation in margin on variable cost for promotional actions at Saveurs de la Mer.
Proposed correction:
The margin on unit variable cost is calculated as follows:
Unit margin = €75 – €45 = €30
Each tray sold generates a unit margin of €30.
The total weekly variable cost margin is obtained by:
Total weekly margin = €30 x 80 = €2
The weekly margin is €2.
If the selling price falls to €70, the unit margin becomes:
New unit margin = €70 – €45 = €25
A price reduction lowers the unit margin to €25.
With a 25% increase in sales:
New volumes = 80 + (0,25 x 80) = 100
New total margin = €30 x 100 = €3
Increasing sales by 25% raises the margin to €3.
Adjusting margins on variable costs allows Saveurs de la Mer to respond to market fluctuations, strategically allocate resources to promotional operations and maximize its return on investment.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Selling price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Weekly sales |
Application: Serenity Spa
States :
Serenity Spa, a wellness center in Rome, is offering a new facial treatment package and wants to analyze its contribution margin. Here are the data:
- Package price: €100
- Variable cost: €60
- Number of packages sold per week: 120
Management is considering several options to optimize its service offerings and wishes to personalize the financial analysis.
Work to do :
- Identify the margin on unit variable cost for each package.
- Calculate the total weekly variable cost margin.
- What happens to the unit margin if a price increase brings the package to €110?
- Consider the impact on total margin if sales increase by 20% from a new campaign.
- Explore how dynamic management of variable cost margins influences loyalty at Sérénité Spa.
Proposed correction:
The margin on unit variable cost is as follows:
Unit margin = €100 – €60 = €40
Each package sold generates a margin of €40.
The total weekly variable cost margin is:
Total weekly margin = €40 x 120 = €4
The weekly margin reaches €4.
With a new package price of €110, the unit margin becomes:
New unit margin = €110 – €60 = €50
A price increase raises the unit margin to €50.
With a 20% increase in sales:
New volumes = 120 + (0,20 x 120) = 144
New total margin = €40 x 144 = €5
A successful campaign increases the margin to €5.
Flexible and proactive management of variable cost margins allows Sérénité Spa to offer attractive offers and maximize customer satisfaction, thus ensuring long-term loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin on unit variable cost | Package price – Unit variable cost |
| Total variable cost margin | Margin on unit variable cost x Number of packages sold per week |