In this section:
Application: Horizon Supermarket
States :
Horizon Supermarket wants to optimize its profitability by analyzing the margins made on its food products. Management needs to know which product is the most profitable and how to adjust its prices to maximize its profits. Among the flagship products, the premium pasta pack is sold at a price excluding tax of €2,50 and is purchased at €1,50 excluding tax. The annual quantity sold is 10 units.
Work to do :
- Calculate the unit margin made on each pack of pasta.
- Determine the overall margin for the package of pasta sold annually.
- What is the margin rate obtained on premium pasta?
- Calculate the markup rate for the pasta package.
- Suggest a reflection on the impact of a 10% increase in the selling price excluding tax on profitability.
Proposed correction:
-
The unit margin is the difference between the selling price excluding VAT and the purchasing price excluding VAT.
Unit margin = PV excluding tax – PA excluding tax = €2,50 – €1,50 = €1,00.
Each pack of pasta generates a margin of €1,00. -
The overall margin is calculated by multiplying the unit margin by the quantity sold.
Overall margin = Unit margin x Quantity sold = €1,00 x 10 = €000.
The supermarket makes an overall margin of €10 on premium pasta. -
The margin rate is calculated using the following formula: ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€2,50 – €1,50) ÷ €1,50) x 100 = 66,67%.
The margin rate on premium pasta is 66,67%.
-
For the markup rate, use the formula: ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€2,50 – €1,50) ÷ €2,50) x 100 = 40%.
The markup rate is 40% for premium pasta. -
If the sale price increases by 10%, then the new PV excluding tax = €2,50 x 1,10 = €2,75.
New unit margin = €2,75 – €1,50 = €1,25.
New overall margin = €1,25 x €10 = €000.
Increasing the selling price would improve the overall margin, but it is important to consider the potential impact on sales volumes.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Futuristic Electronics
States :
The chain of stores Électronique Futuriste wants to analyze the profitability of its latest 4K televisions. The televisions have a purchase price excluding tax of €400 and are sold at €700 excluding tax. 1500 units are sold each year. The management seeks to optimize its pricing strategy while remaining competitive on the market.
Work to do :
- Calculate the unit margin for a television sold.
- What is the overall annual margin on televisions?
- Determine the margin rate for televisions.
- Calculate the current markup rate for these products.
- Analyze the impact of the 5% purchase price decrease on the unit margin.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €700 – €400 = €300.
Each television sold generates a margin of €300. -
Overall margin = Unit margin x Quantity sold = €300 x 1500 = €450.
The overall annual margin generated by televisions is €450. -
Margin rate = ((€700 – €400) ÷ €400) x 100 = 75%.
The margin rate for televisions is 75%.
-
Markup rate = ((€700 – €400) ÷ €700) x 100 = 42,86%.
The current markup rate for TVs is 42,86%. -
If the purchase price decreases by 5%, the new PA excluding tax = €400 x 0,95 = €380.
New unit margin = €700 – €380 = €320.
The 5% reduction in the purchase price increases the unit margin to €320, thus improving the profitability of the product without changing the sales price.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: EcoChic Boutique
States :
Boutique ÉcoChic specializes in eco-friendly clothing. It wants to analyze the margins of its t-shirts made of recycled cotton, which sell for €30 excluding VAT each and cost €18 excluding VAT to buy. They have become popular, leading to sales of 3000 units per year.
Work to do :
- Determine the unit margin for each t-shirt sold.
- Calculate the overall annual margin obtained from t-shirts.
- Calculate the margin rate for this product.
- Rate the markup rate of these t-shirts.
- Discuss the potential effect of increasing sales by 10% without changing the price.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €30 – €18 = €12.
Each t-shirt sold brings in a margin of €12. -
Overall margin = Unit margin x Quantity sold = €12 x 3000 = €36.
The store thus achieves a total margin of €36 thanks to its t-shirts. -
Margin rate = ((€30 – €18) ÷ €18) x 100 = 66,67%.
The margin rate for t-shirts is therefore 66,67%.
-
Markup rate = ((€30 – €18) ÷ €30) x 100 = 40%.
The markdown rate is 40% for these t-shirts. -
A 10% increase in sales would result in a new quantity sold = 3000 x 1,10 = 3300.
New overall margin = €12 x 3300 = €39.
This increase in sales would significantly improve the overall margin, even without a price change.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Local Delights
States :
The company Les Délices du Terroir is known for its regional gastronomic products. It sells jars of artisanal jam for €10 excluding VAT, while the purchase cost of these jars is €6 excluding VAT. It sells 1200 units per month, but plans to expand its production.
Work to do :
- Calculate the unit margin for each jar of jam.
- What is the overall monthly margin on these jams?
- Determine the monthly margin rate for jams.
- Calculate the markup rate for these products.
- Consider the implications of a 2% reduction in production cost on unit margin.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €10 – €6 = €4.
Each jar of jam sold generates a margin of €4. -
Overall margin = Unit margin x Quantity sold = €4 x 1200 = €4.
Les Délices du Terroir achieves a monthly overall margin of €4 on its jams. -
Margin rate = ((€10 – €6) ÷ €6) x 100 = 66,67%.
This corresponds to a margin rate of 66,67% per month.
-
Markup rate = ((€10 – €6) ÷ €10) x 100 = 40%.
The markup rate of these jams is 40%. -
If the production cost decreases by 2%, the new PA excluding tax = €6 x 0,98 = €5,88.
New unit margin = €10 – €5,88 = €4,12.
This decrease slightly improves the unit margin, strengthening overall profitability without changing the selling price.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Confectionery of the World
States :
Confiseries du Monde sells assortments of fine chocolates at a price of €25 excluding VAT per box. The purchase cost is €16 excluding VAT for each box. With a quantity sold of 5000 boxes per year, the company wishes to explore opportunities to improve its pricing strategy.
Work to do :
- Calculate the unit margin for each box of chocolates.
- What is the annual overall margin on chocolates?
- Determine the margin rate of the item.
- Calculate the markup rate of the chocolate assortment.
- Discuss the impact of a promotional offer that reduces the sale price by 10%.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €25 – €16 = €9.
Each box of chocolate brings in a margin of €9. -
Overall margin = Unit margin x Quantity sold = €9 x 5000 = €45.
The overall annual margin generated by the chocolates is therefore €45. -
Margin rate = ((€25 – €16) ÷ €16) x 100 = 56,25%.
The margin rate for chocolates is 56,25%.
-
Markup rate = ((€25 – €16) ÷ €25) x 100 = 36%.
The markup rate on these assortments is 36%. -
If the sale price decreases by 10%, the new PV excluding tax = €25 x 0,90 = €22,50.
New unit margin = €22,50 – €16 = €6,50.
This promotion reduces unit margin, forcing the company to evaluate whether the additional sales volume will offset the drop in unit profit.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Golden Leaf Bookstore
States :
Librairie Aux Feuilles d'Or sells limited editions of collector's books, each sold at €50 excluding VAT and purchased at €30 excluding VAT. With 800 units sold per year, the bookstore is interested in the margins made on this product segment.
Work to do :
- Determine the unit margin of a book sold.
- Calculate the overall annual margin made on the books.
- What is the margin rate associated with this product?
- Rate the markup rate for these collectible books.
- Discuss the effects of a 15% increase in selling price on sales strategy.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €50 – €30 = €20.
The sale of each book generates a margin of €20. -
Overall margin = Unit margin x Quantity sold = €20 x 800 = €16.
The overall annual margin on books amounts to €16. -
Margin rate = ((€50 – €30) ÷ €30) x 100 = 66,67%.
The margin rate for these books is 66,67%.
-
Markup rate = ((€50 – €30) ÷ €50) x 100 = 40%.
The markup rate for collectible books is 40%. -
If the sale price is increased by 15%, the new PV excluding tax = €50 x 1,15 = €57,50.
New unit margin = €57,50 – €30 = €27,50.
This price increase will significantly strengthen the unit margin, but it will be necessary to assess whether the market is ready to accept this increase without a negative impact on 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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Light & Design Workshops
States :
Ateliers Lumière & Design, a retailer of elegant lighting fixtures, sells modern lamps at a price of €120 excluding VAT, while the purchase cost is €80 excluding VAT. With an annual sale of 250 lamps, the company evaluates the efficiency of its margins.
Work to do :
- Calculate the unit margin when selling a lamp.
- What is the overall annual margin that this leads to?
- Determine the margin rate on this type of product.
- Calculate the markup rate for these lamps.
- Consider the pros and cons of offering a 20% discount on the sale price to boost sales.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €120 – €80 = €40.
The unit margin for each lamp sold is €40. -
Overall margin = Unit margin x Quantity sold = €40 x 250 = €10.
Each year, the company achieves a total margin of €10 on its lamps. -
Margin rate = ((€120 – €80) ÷ €80) x 100 = 50%.
This margin rate shows that for every euro invested in a lamp, 50% is recovered in margin.
-
Markup rate = ((€120 – €80) ÷ €120) x 100 = 33,33%.
The markup rate for lamps is 33,33%. -
A 20% reduction on the PV excluding VAT brings it to €120 x 0,80 = €96.
New unit margin = €96 – €80 = €16.
Although this discount potentially increases sales, it reduces the unit margin, forcing the company to compensate with increased sales volume.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Unusual Travels
States :
Voyages Insolites offers hot air balloon tours at a price of €350 excluding VAT, for a purchase cost of €250 excluding VAT. The company organizes around 200 tours per year and wants to analyze its pricing strategy.
Work to do :
- Calculate the unit margin for each hot air balloon circuit.
- What is the overall margin obtained each year?
- What margin rate is applied to circuits?
- Identify the markup rate of the current offer.
- Provide an analysis of the impact of a 5% increase in purchase cost on margin.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €350 – €250 = €100.
Each hot air balloon tour thus generates a unit margin of €100. -
Overall margin = Unit margin x Quantity sold = €100 x 200 = €20.
The total annual margins that the company generates reach €20. -
Margin rate = ((€350 – €250) ÷ €250) x 100 = 40%.
Compared to the purchase cost, the margin rate therefore corresponds to 40%.
-
Markup rate = ((€350 – €250) ÷ €350) x 100 = 28,57%.
This indicates that the markup rate for this offer is 28,57%. -
A 5% increase in purchase cost would bring it to €250 x 1,05 = €262,50.
New unit margin = €350 – €262,50 = €87,50.
This increase would significantly reduce the margin, forcing Voyages Insolites to reconsider its pricing policy or to absorb the cost by reducing other charges.
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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
Application: Eco-Initiative
States :
Eco-Initiative, a company specializing in ecological air purifiers, sells its products at €200 excluding VAT per unit, for a purchase cost of €135 excluding VAT. With 1 units sold each year, the company seeks to optimize its margins while strengthening its competitiveness.
Work to do :
- Calculate the unit margin on each purifier sold.
- What is the annual overall margin achieved?
- Determine the margin rate for this product.
- Evaluate the current markup rate.
- Discuss what to consider to maintain margins if the market becomes more competitive.
Proposed correction:
-
Unit margin = PV excluding tax – PA excluding tax = €200 – €135 = €65.
Each purifier sold gives the company a unit margin of €65. -
Overall margin = Unit margin x Quantity sold = €65 x 1000 = €65.
Eco-Initiative therefore generates an annual margin of €65 thanks to its sales. -
Margin rate = ((€200 – €135) ÷ €135) x 100 = 48,15%.
This rate means that the margin achieved represents 48,15% of the purchase price.
-
Markup rate = ((€200 – €135) ÷ €200) x 100 = 32,5%.
The markup rate for purifiers is 32,5%. -
Maintaining margins in the face of competition may require resourcing to lower costs, improving perceived product value to justify pricing, or exploring less saturated market segments. It is crucial to assess how these decisions will impact both unit margin and overall 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 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |