In this section:
Application: FashionFinesse
States :
FashionFinesse, a Parisian fashion boutique, is looking to optimize its margins on a new collection of jackets. For a jacket sold at a tax-free price of €150 and purchased at a price of €90, they want to know the commercial performance of this item. In addition, they are looking to understand the impact on their sales if the price were to increase by 10%.
Work to do :
- Calculate the unit sales margin made by FashionFinesse on each jacket.
- What is the overall margin if FashionFinesse sells 300 jackets?
- Determine the margin rate on the jacket.
- Calculate the new selling price after a 10% increase and the new unit margin.
- Analyze the implications of this price increase on customer perception and FashionFinesse's business strategy.
Proposed correction:
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The unit sales margin is the difference between the selling price excluding VAT and the purchase price excluding VAT. Here, it is €150 – €90 = €60. FashionFinesse makes a margin of €60 on each jacket sold.
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The overall margin is obtained by multiplying the unit margin by the number of jackets sold: €60 x 300 = €18. The sale of 000 jackets generates an overall margin of €300.
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The margin rate is calculated using the formula ((PV HT – PA HT) ÷ PA HT) x 100. Therefore: ((150 € – 90 €) ÷ 90 €) x 100 = 66,67%. The margin rate for this jacket is 66,67%.
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The new selling price after a 10% increase is €150 x (1 + 0,10) = €165. The new unit margin would be €165 – €90 = €75. With the increased price, FashionFinesse now makes a unit margin of €75 per jacket.
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A 10% price increase could cause customers to rethink the perceived value of the jacket. If FashionFinesse justifies this increase with better design or higher quality materials, it could strengthen their market position. However, if customers do not see the added value, it could lead to a decrease in sales.
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 sale price | PV HT x (1 + increase rate) |
| New unit margin | New PV HT – PA HT |
App: GourmetGastronomy
States :
GourmetGastronomy, a Michelin-starred restaurant in Lyon, wants to determine the profitability of a flagship dish: beef fillet. The selling price of the dish excluding tax is €45, while its cost price is €20. The establishment is considering offering a 15% discount on this dish to attract more customers.
Work to do :
- Calculate the unit margin made on each dish of beef fillet.
- If the restaurant sells 200 dishes during the week, what will the overall margin be?
- Determine the margin rate for this dish.
- What will the selling price be after applying the 15% discount, and how will this affect the unit margin?
- Consider how this discount will impact customer perception and the restaurant's marketing strategy.
Proposed correction:
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The unit margin is €45 – €20 = €25. The profit made by GourmetGastronomy on each dish sold is €25.
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The overall margin for 200 dishes is €25 x 200 = €5. The week therefore brings in a total margin of €000.
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The margin rate is calculated using ((PV HT – PA HT) ÷ PA HT) x 100 : ((45 € – 20 €) ÷ 20 €) x 100 = 125%. The margin rate on this dish is 125%.
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Applying a 15% discount, the new selling price is €45 x (1 – 0,15) = €38,25. The new unit margin becomes €38,25 – €20 = €18,25. With the discount, the unit margin decreases to €18,25.
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Such a discount can attract more customers, especially in a competitive environment. However, the restaurant must be careful not to erode the perception of quality associated with its dish. The success of this strategy will depend on GourmetGastronomy's ability to maintain a perception of luxury while offering discounts.
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 sale price | PV HT x (1 – discount rate) |
| New unit margin | New PV HT – PA HT |
Application: TechTonic Innovations
States :
TechTonic Innovations, a start-up in the high-tech sector, specializes in the manufacture of connected devices. One of their flagship products, the smart bracelet, is sold excluding tax for €120 with a production cost of €80. The company wants to adjust its prices based on customer feedback to increase its market share.
Work to do :
- Calculate the unit margin for each smart bracelet sold.
- If TechTonic Innovates sells 400 units, what will the overall margin be?
- What is the margin rate for this product?
- Consider a 5% discount on the selling price, calculate the new price and the new unit margin.
- Discuss the possible implications of this price reduction on competition and customer perception of the product.
Proposed correction:
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The unit margin of the bracelet is €120 – €80 = €40. For each bracelet sold, TechTonic Innovations makes a margin of €40.
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The overall margin for 400 bracelets is €40 x 400 = €16. The sales thus generate a total margin of €000.
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The margin rate is calculated as follows: ((€120 – €80) ÷ €80) x 100 = 50%. The product has a margin rate of 50%.
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With a 5% discount, the new selling price will be €120 x (1 – 0,05) = €114. The new unit margin will then be €114 – €80 = €34. This price reduction lowers the unit margin to €34.
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Reducing the price could increase the attractiveness of the bracelets to a wider customer base, potentially leading to increased unit sales. However, it puts TechTonic Innovations in direct competition with potentially lower quality products, which could affect the brand's perception as innovative and premium.
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 sale price | PV HT x (1 – reduction rate) |
| New unit margin | New PV HT – PA HT |
Application: BioGreen Supplies
States :
BioGreen Supplies, an eco-friendly supplies company, sells recycled notebooks at a retail price of €8 excluding VAT and a purchase price of €5 excluding VAT. Faced with growing demand, the company is considering reducing the cost of purchasing through a new supplier.
Work to do :
- Determine the current unit margin of the notebooks sold.
- For a total sale of 1 notebooks, what is the total margin?
- What is the markup rate achieved?
- If the company manages to reduce its purchasing cost by 10%, what will the new unit margin be?
- Consider the potential impacts of reducing purchasing cost on BioGreen Supplies' quality and reputation.
Proposed correction:
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The current unit margin for notebooks is €8 – €5 = €3. BioGreen Supplies therefore makes a unit margin of €3 on each notebook sold.
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The overall margin made by selling 1 notebooks is €000 x 3 = €1. So they get an overall margin of €000.
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The markup rate is obtained with the formula ((PV HT – PA HT) ÷ PV HT) x 100: ((€8 – €5) ÷ €8) x 100 = 37,5%. The markup rate on the booklets is 37,5%.
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If BioGreen Supplies reduces the purchase cost by 10%, the new purchase cost is €5 x (1 – 0,10) = €4,50. The new unit margin becomes €8 – €4,50 = €3,50. This increases the unit margin to €3,50.
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While cost cutting may improve margin, BioGreen Supplies must ensure that the quality of the notebooks is not compromised. Any change in brand perception could affect customer loyalty, especially for a company promoting sustainable green products.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New purchase cost | PA HT x (1 – reduction rate) |
| New unit margin | PV HT – New PA HT |
Application: PrecisionOptics
States :
PrecisionOptics, a company specializing in corrective lenses, offers a model at a sales price excluding VAT of €250, with a production cost of €160. In order to stimulate sales, the company is considering granting a trade discount of 8% for bulk orders.
Work to do :
- Calculate the current unit margin achieved by PrecisionOptics.
- If the company sells 150 lenses, what will be the overall margin achieved?
- What is the current markup rate?
- Calculate the net selling price after applying the discount, as well as the new unit margin.
- Evaluate the potential impact of the discount on PrecisionOptics' margins and their competitiveness in the corrective lens market.
Proposed correction:
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The current unit margin is €250 – €160 = €90. PrecisionOptics makes a margin of €90 per lens sold.
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The overall margin for 150 units sold is €90 x 150 = €13. The sale of these lenses therefore generates a total margin of €500.
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To calculate the markup rate, we use ((PV HT – PA HT) ÷ PV HT) x 100: ((€250 – €160) ÷ €250) x 100 = 36%. The company's current markup rate on this model is 36%.
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With an 8% discount, the new net selling price is €250 x (1 – 0,08) = €230. The new unit margin is therefore €230 – €160 = €70. Applying the discount reduces the unit margin to €70.
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Offering a discount may make PrecisionOptics lenses more attractive to retailers and increase order quantity. However, it would sacrifice some margins. The company must weigh the expected additional sales volume against the decrease in unit margin to remain competitive in a market where quality and price are critical.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New net PV after discount | PV HT x (1 – discount rate) |
| New unit margin | New PV HT – PA HT |
Application: EcoFurniture
States :
EcoFurniture is an eco-friendly furniture manufacturer selling a designer coffee table at a price of €320 excluding VAT, with a unit cost of €200. The company is considering reviewing its prices in anticipation of a 5% increase in supply costs.
Work to do :
- Calculate the unit margin for this coffee table.
- For a batch of 50 coffee tables sold, let's determine the overall margin.
- What is the current margin rate for this product?
- With a projected 5% increase in supply costs, find the new unit cost and the new unit margin.
- Discuss the financial implications for EcoFurniture of increased costs on their positioning with eco-responsible products.
Proposed correction:
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For a coffee table, the unit margin is calculated as follows: €320 – €200 = €120. Each table sold brings a margin of €120.
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The total margin for a batch of 50 tables is €120 x 50 = €6. Sales of this batch therefore generate a margin of €000.
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As for the margin rate, this is ((PV HT – PA HT) ÷ PA HT) x 100 : ((320 € – 200 €) ÷ 200 €) x 100 = 60%. The margin rate is therefore 60%.
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After a 5% increase in supply costs, the new unit cost will be €200 x (1 + 0,05) = €210. The new unit margin becomes €320 – €210 = €110. On each table, the unit margin now reduces to €110.
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Rising costs can reduce profit margins, which may lead EcoFurniture to review its selling prices to protect its profitability. However, repositioning towards a price increase could be risky in a competitive environment even for an eco-friendly product, where customer engagement and value perception must be balanced.
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 unit cost | PA HT x (1 + cost increase) |
| New unit margin | PV HT – New PA HT |
Application: AvantGarde Aesthetics
States :
AvantGarde Aesthetics, an innovative luxury cosmetics company, sells an anti-aging serum for €200 excluding taxes, for a cost price of €120. In response to increasing competition, the company is considering improving its value proposition without changing the selling price.
Work to do :
- Determine the current unit margin of this serum.
- What would be the total revenue generated with a sale of 250 bottles, and what will the overall margin be?
- Calculate the mark rate for this serum.
- Analyze the implications of a 10% reduction in cost price on unit margin.
- Evaluate the potential brand impact of the product improvement initiative without price adjustment.
Proposed correction:
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The current unit margin is calculated as: €200 – €120 = €80. Each bottle of serum sold generates a margin of €80.
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The total revenue for 250 bottles would be €200 x 250 = €50. The overall margin would therefore be €000 x 80 = €250. With these sales, AvantGarde Aesthetics will generate a margin of €20.
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The markup rate is calculated as follows: ((PV HT – PA HT) ÷ PV HT) x 100: ((200 € – 120 €) ÷ 200 €) x 100 = 40%. The serum has a markup rate of 40%.
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By reducing the cost price by 10%, the new cost price is €120 x (1 – 0,10) = €108. The new unit margin becomes €200 – €108 = €92. This improves the unit margin to €92.
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Improving the product while maintaining the price can enhance the perception of the company as a luxury yet accessible brand. However, this must be communicated clearly to avoid potential negative expectations, as consumers may suspect a reduction in quality.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New cost price | PA HT x (1 – cost reduction) |
| New unit margin | PV HT – New PA HT |
App: UrbanSound Equipment
States :
UrbanSound Equipment, a supplier of audio equipment, offers a portable speaker at a price excluding VAT of €180, while its production cost is €110. In order to expand its customer base, the company is considering offering a promotional offer including a €20 discount.
Work to do :
- Calculate the current unit margin of the enclosure.
- If UrbanSound sells a batch of 600 speakers during the promotion, determine the overall margin with the discount.
- What is the current margin rate?
- Identify the new net selling price with the discount and the modified unit margin.
- Discuss the short and long term implications of this promotional strategy for UrbanSound Equipment.
Proposed correction:
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The current unit margin for the enclosure is calculated as: €180 – €110 = €70. The margin on each unit sold is therefore €70.
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With the discount, the selling price becomes €180 – €20 = €160. The new unit margin is €160 – €110 = €50. Thus, the overall margin for selling 600 units is €50 x 600 = €30. During the promotion, the total margin becomes €000.
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The initial margin rate is calculated by ((PV HT – PA HT) ÷ PA HT) x 100 : ((180 € – 110 €) ÷ 110 €) x 100 = 63,64%. The enclosure therefore has an initial margin rate of 63,64%.
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With the discount, the unit margin is reduced to €50, and the net sale price is €160. UrbanSound is therefore adjusting its strategy to maintain price competitiveness.
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In the short term, this offer can boost sales, attracting new customers and increasing brand awareness. However, in the long term, care must be taken not to harm the perception of quality or accustom consumers to regular discounts that could erode margins.
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 |
| Net PV with discount | PV HT – discount |
| New unit margin | Net PV – HT PA |
Application: SweetHeal Apothecary
States :
SweetHeal Apothecary, a chain of natural health product stores, offers a box of premium herbal teas sold at €30 excluding VAT while the purchase price is €15. Faced with the emergence of new competitors, the company is considering a strategic change in its sales prices.
Work to do :
- Calculate the current unit margin per box of herbal tea sold.
- If the company sells 800 boxes in a month, what is their current overall margin?
- Determine the current markup rate of these herbal teas.
- If SweetHeal decides to increase the selling price by 12% to remain competitive, what will the new unit margin be?
- Analyze the possible implications of this price increase on SweetHeal's positioning in the natural health market.
Proposed correction:
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The current unit margin on each box is €30 – €15 = €15. This implies a margin of €15 for each box sold.
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For 800 boxes, the overall margin is obtained by €15 x 800 = €12. These sales therefore generate a total margin of €000.
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The current markup rate is calculated with ((PV HT – PA HT) ÷ PV HT) x 100 : ((30 € – 15 €) ÷ 30 €) x 100 = 50%. The herbal tea has a markup rate of 50%.
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After a 12% increase, the new selling price would be €30 x 1,12 = €33,60. The new unit margin becomes €33,60 – €15 = €18,60. The new unit margin is therefore €18,60 per box.
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A price increase could reposition SweetHeal as a luxury brand if accompanied by a perceived improvement in quality or branding. However, it is also crucial to monitor consumer reactions to avoid a potential decline in sales volume.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x quantity sold |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New PV after increase | PV HT x (1 + increase rate) |
| New unit margin | New PV HT – PA HT |