How to Calculate a Margin Rate Formula | 9 Exercises

Application: Market Delights

States :

Les Délices du Marché is a caterer specializing in organic and seasonal products. They want to evaluate the profitability of their flagship products to adjust their sales prices. Let's help them calculate the margin rate of some of their products.

Work to do :

1. The purchase price excluding tax of a prepared meal is €8. What is the margin rate if this meal is sold for €12 excluding tax?
2. How do you calculate the unit margin given the purchase price and the sale price?
3. If Les Délices du Marché wants to have a margin rate of 30%, what should be the selling price excluding tax of a product purchased at €10 excluding tax?
4. What is the overall margin if 200 dishes, each with a unit margin of €4, are sold?
5. Analyze the impact of reducing the purchase cost to €7 on the margin rate initially calculated in the first question.

Proposed correction:

1. To calculate the margin rate, use the formula:
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((12 – 8) ÷ 8) x 100 = 50%.
   So the margin rate is 50%.

2. The unit margin is calculated by subtracting the pre-tax purchase price from the pre-tax selling price.
   Therefore, Unit Margin = PV HT – PA HT.
   The unit margin allows you to know how much the company earns per unit sold.

3. For a 30% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 10 x (1 + 0,30) = €13.
The selling price excluding VAT must be €13.

4. The overall margin is obtained by:
   Overall margin = Unit margin x Quantity sold.
   So, €4 x 200 = €800.
   The overall margin is €800.

5. The new purchase cost is €7. New margin rate = ((12 – 7) ÷ 7) x 100 = 71,43%.
   Lowering the purchase cost improves the margin rate, making it more attractive.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: Technosales

States :

Technovente is an innovative technology company that seeks to increase its profitability by maximizing margins on its products. They are mainly interested in high-demand electronic products.

Work to do :

1. An electronic gadget is purchased for €50 excluding VAT and sold for €80 excluding VAT. Calculate the margin rate.
2. What unit margin does Technovente achieve on each gadget sold?
3. What selling price would be needed to achieve a 60% margin rate, starting from the same purchase price?
4. If Technovente sells 500 gadgets with a unit margin of €20, what is the overall margin?
5. Criticize Technovente's strategy if it decides to reduce its selling price to €70 excluding VAT to increase sales.

Proposed correction:

1. Calculating the margin rate with:
   Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((80 – 50) ÷ 50) x 100 = 60%.
   The margin rate therefore amounts to 60%.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 80 – 50 = €30.
   Technovente makes a margin of €30 per gadget sold.

3. To achieve a 60% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Equaling, 50 x (1 + 0,60) = €80.
As the calculation shows €80, Technovente must maintain this price to achieve this objective.

4. Overall margin with:
   Overall margin = Unit margin x Quantity sold.
   Replacing, 20 x 500 = €10.
   Technovente's overall margin is €10.

5. Reducing the sale price to €70 excluding VAT changes the margin rate:
   New rate = ((70 – 50) ÷ 50) x 100 = 40%.
   This reduction reduces the unit and overall margin, potentially harming profitability in the long term.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: Fashion & Chic

States :

Mode & Chic, a company in the fashion industry, wants to calculate the margins applicable to their new clothing collection. They are considering adjusting their pricing strategy to increase their profit while remaining competitive in the market.

Work to do :

1. Calculate the margin rate of a dress purchased for €30 excluding tax and sold for €50 excluding tax.
2. What is the unit margin made on the sale of this dress?
3. To obtain a margin rate of 35%, what selling price excluding tax should be set for a skirt purchased for €20 excluding tax?
4. Mode & Chic sells 300 dresses with a unit margin of €20. What is the overall margin?
5. Consider the potential impact of increasing the purchase price to €35 on the margin initially calculated in the first question.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((50 – 30) ÷ 30) x 100 = 66,67%.
   The markup on the dress is 66,67%.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 50 – 30 = €20.
   Mode & Chic makes a margin of €20 per dress sold.

3. For a margin rate of 35%, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 20 x (1 + 0,35) = €27.
The necessary sale price for the skirt is €27.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 20 x 300 = €6.
   The overall margin of Mode & Chic is €6.

5. If the purchase price increases to €35, the new margin rate is recalculated:
   Margin rate = ((50 – 35) ÷ 35) x 100 = 42,86%.
   The increase in the purchase price significantly reduces the margin rate.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: BioVerger

States :

BioVerger specializes in organic market garden products and wants to understand the margins of its different fruits to optimize its sales strategy and maximize its profits.

Work to do :

1. A basket of fruit is purchased for €15 excluding VAT and sold for €25 excluding VAT. What is the margin rate?
2. What is the unit margin made on the sale of a basket of fruit?
3. To obtain a margin rate of 50%, what selling price excluding tax should BioVerger set for a basket purchased at €12 excluding tax?
4. What is the overall margin if BioVerger sells 100 baskets with a unit margin of €10?
5. Describe the strategic implications of switching to lower cost suppliers on the initially calculated margin rate.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((25 – 15) ÷ 15) x 100 = 66,67%.
   The margin rate for the fruit basket is 66,67%.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 25 – 15 = €10.
   BioVerger makes a margin of €10 per basket sold.

3. For a 50% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 12 x (1 + 0,50) = €18.
The selling price for a basket with this margin is €18.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 10 x 100 = €1.
   The overall margin is worth €1 for BioVerger.

5. By changing suppliers for lower purchase prices, the margin rate could increase, making the products even more profitable. This can also impact the quality of the products and lead to a reflection on the balance between cost and quality.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: StartTech

States :

StartTech, a young software company, analyzes its pricing to ensure it remains competitive while maintaining good margins to reinvest in R&D.

Work to do :

1. Calculate the margin rate of software purchased for €100 excluding tax and sold for €160 excluding tax.
2. What is the unit margin made on each software sold?
3. To obtain a margin rate of 40%, what selling price excluding tax should StartTech set for software purchased at €120 excluding tax?
4. If StartTech sells 250 software programs with a unit margin of €60, what is the overall margin generated?
5. Consider the consequences for the margin rate if the selling price is lowered to €150 excluding VAT.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((160 – 100) ÷ 100) x 100 = 60%.
   The margin rate is 60% for the software.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 160 – 100 = €60.
   The unit margin for StartTech is €60 per software.

3. For a desired margin rate of 40%, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 120 x (1 + 0,40) = €168.
The sale price must be €168 to achieve this goal.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 60 x 250 = €15.
   The overall margin is therefore €15.

5. With a new selling price of €150, the margin rate becomes:
   Margin rate = ((150 – 100) ÷ 100) x 100 = 50%.
   The decrease in the selling price leads to a decrease in the margin rate, reducing profitability.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: Sustainable Energies

States :

ÉnergiesDurables, a supplier of solar equipment, wants to improve its pricing policy to boost its margins while remaining a pioneer in renewable energy.

Work to do :

1. Calculate the margin rate of a solar panel purchased for €200 excluding tax and sold for €320 excluding tax.
2. What is the unit margin made on each solar panel sold?
3. To aim for a margin rate of 45%, what selling price excluding tax should be set if the purchase cost is €220 excluding tax?
4. At 400 panel sales with a unit margin of €120, what is the overall margin?
5. Explain the strategic impacts of a move to a purchase price of €210 excluding VAT on the initially calculated margin rate.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((320 – 200) ÷ 200) x 100 = 60%.
   The margin rate reaches 60% for each panel.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 320 – 200 = €120.
   The unit margin is therefore €120 per panel.

3. To achieve a 45% margin rate, apply:

PV HT = PA HT x (1 + Margin rate).
Replacing, 220 x (1 + 0,45) = €319.
The sale price would have to be €319 to get this rate.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 120 x 400 = €48.
   The overall margin thus amounts to €48.

5. If the purchase price drops to €210, the new margin rate is:
   Margin rate = ((320 – 210) ÷ 210) x 100 = 52,38%.
   This cost reduction improves the margin rate, increasing the attractiveness for the company.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: GourmetDelice

States :

GourmetDélice, a renowned restaurant, wants to analyze the margins generated by its signature dishes. Particular attention is paid to profitability to determine their optimal pricing.

Work to do :

1. Calculate the margin rate for a dish purchased for €12 excluding tax and sold for €28 excluding tax.
2. What is the unit margin made on each dish sold?
3. To aim for a margin rate of 70%, what selling price excluding tax should be set if the purchase cost is €15 excluding tax?
4. At 150 sales with a unit margin of €16, what is the overall margin?
5. Consider the strategic implications of reducing the selling price to €25 excluding VAT on the initially calculated margin rate.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((28 – 12) ÷ 12) x 100 = 133,33%.
   The margin rate here is 133,33% for each dish.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 28 – 12 = €16.
   Thus, the unit margin for each dish sold by GourmetDélice is €16.

3. For a 70% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 15 x (1 + 0,70) = €25,50.
The selling price to be set to achieve this objective is €25,50.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 16 x 150 = €2.
   The overall margin amounts to €2.

5. With a reduced selling price of €25, the new margin rate becomes:
   Margin rate = ((25 – 12) ÷ 12) x 100 = 108,33%.
   This reduction results in a lower margin rate, which could affect profitability but potentially increase sales volume.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: ArtGalleryPlus

States :

ArtGalleryPlus, an art gallery, wants to estimate the margins made by the sale of its contemporary paintings in order to readjust its selling prices to maximize profits.

Work to do :

1. Calculate the margin rate of a work purchased for €600 excluding tax and sold for €1 excluding tax.
2. What is the unit margin made on the sale of each work of art?
3. To aim for a margin rate of 50%, what selling price excluding tax should be set for a work purchased for €800 excluding tax?
4. If ArtGalleryPlus sells 25 works with a unit margin of €600, what is the overall margin?
5. Discuss the strategic consequences of moving to a purchase price of €700 on the initially calculated margin rate.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((1 – 200) ÷ 600) x 600 = 100%.
   The margin rate for the work is therefore 100%.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 1 – 200 = €600.
   The unit margin on each work sold is €600.

3. To achieve a 50% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Substituting, 800 x (1 + 0,50) = €1.
The selling price needed to achieve this goal is €1.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 600 x 25 = €15.
   The overall margin generated by ArtGalleryPlus is €15.

5. Moving to a purchase price of €700, the recalculated margin rate is:
   Margin rate = ((1 – 200) ÷ 700) x 700 = 100%.
   This change reduces the margin rate, potentially impacting profitability, but it can offer better supplier relationships or product qualities.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: GreenTools

States :

GreenTools, a maker of eco-friendly gardening tools, is evaluating its margins in an effort to better target its marketing and sustainability investment efforts.

Work to do :

1. Calculate the margin rate of a tool purchased at €25 excluding VAT and sold at €45 excluding VAT.
2. What unit margin is obtained on the sale of this tool?
3. What selling price excluding tax should be set for a purchase of €30 excluding tax if the desired margin rate is 40%?
4. If GreenTools sells 500 tools with a unit margin of €20, what is the overall margin?
5. Analyze the impact on the margin rate if the selling price is increased to €50 excluding VAT.

Proposed correction:

1. Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
   Substituting, ((45 – 25) ÷ 25) x 100 = 80%.
   The margin rate for this tool is 80%.

2. Unit margin = PV excluding tax – PA excluding tax, i.e. 45 – 25 = €20.
   The unit margin for each tool is therefore €20.

3. To aim for a 40% margin rate, use:

PV HT = PA HT x (1 + Margin rate).
Replacing, 30 x (1 + 0,40) = €42.
The necessary sale price is €42 to achieve this goal.

4. Overall margin = Unit margin x Quantity sold.
   Replacing, 20 x 500 = €10.
   Thus, the overall margin generated is €10.

5. With a sale price increased to €50, the margin rate becomes:
   Margin rate = ((50 – 25) ÷ 25) x 100 = 100%.
   This increase boosts profitability with an optimized margin, promoting reinvestment in ecological innovations.

Formulas Used:

Title	Formulas
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
Unit margin	PV HT – PA HT
PV HT with margin	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold