Application: Renaissance Cafe
States :
Café de la Renaissance is a company that is looking to optimize its coffee bean inventory management. The manager wants to be sure to order the economical quantity to minimize costs. Here are the data for the calculation: the annual demand is 2 kg, the ordering cost is €400 per order, and the annual storage cost per kg is €50.
Work to do :
- Calculate the Economic Order Quantity (EOQ) of coffee beans.
- Determine the optimal number of orders per year.
- What is the total annual storage cost associated with QEC?
- If the order cost increases to €60, how would this affect the QEC?
- Analyze the strategic impact on the supplier-customer relationship if order frequency increases.
Proposed correction:
-
To calculate the Economic Order Quantity (EOQ), we use the formula:
QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).
Substituting, QEC = ?((2 x 2 x 400) ÷ 50) = ?(0,60 ÷ 240) = ?000 = 0,60 kg.
The optimum QEC is approximately 632 kg. -
The optimal number of orders per year is calculated by dividing the annual demand by the QEC:
2400 ÷ 632,46 = 3,79, or approximately 4 orders per year.
This means that approximately 4 orders would need to be placed each year. -
The total annual storage cost is half the average inventory multiplied by the storage cost:
(632,46 ÷ 2) x 0,60 = 316,23 x 0,60 = €189,74.
The total cost of storage is approximately €189,74 per year.
-
If the order cost increases to €60, let's recalculate the QEC:
QEC = ?((2 x 2 x 400) ÷ 60) = ?(0,60 ÷ 288) = ?000 = 0,60 kg.
With an order cost of €60, the new QEC is approximately 693 kg. -
Increasing order frequency could strengthen the supplier-customer relationship by increasing interaction and the ability to negotiate better terms, while improving flexibility and responsiveness to market changes.
Formulas Used:
Title | Formulas |
---|---|
Economic Order Quantity (EOQ) | QEC = ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Number of annual orders | Number of orders = Annual demand ÷ QEC |
Total storage cost | Storage cost = (QEC ÷ 2) x Storage cost |
Application: Boutique Elegance
States :
Boutique Élégance is a fashion clothing store that analyzes its sales prices to achieve its business objectives. The average purchase cost excluding tax of its products is €50 and it wants to apply a margin rate of 40%.
Work to do :
- Calculate the selling price excluding tax required to achieve the desired margin rate.
- How much should the sales price be including VAT if the VAT is 20%?
- Determine the markup rate with the calculated selling price excluding tax.
- What would be the impact on the margin if the pre-tax purchase cost increased by €5?
- Discuss the impact on pricing strategy if the company decides to adopt a 50% margin rate in the future.
Proposed correction:
-
To obtain a margin rate of 40%, we use the formula:
PV HT = (PA HT x (1 + Margin rate)).
PV excluding tax = 50 x (1 + 0,40) = €70.
The required selling price excluding VAT is €70. -
To calculate the sales price including VAT at 20%, we use:
PV incl. VAT = PV excl. VAT x (1 + VAT).
PV incl. VAT = 70 x 1,20 = €84.
The sales price including VAT is €84. -
For the markup rate, let's use the formula:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((70 – 50) ÷ 70) x 100 = 28,57%.
The markup rate is 28,57%.
-
If the purchase cost excluding tax increases to €55, let's recalculate the margin:
Margin = ((PV HT – New PA HT) ÷ New PA HT) x 100.
Margin = ((70 – 55) ÷ 55) x 100 = 27,27%.
An increase of €5 in the purchase cost reduces the margin to 27,27%. -
With a 50% margin rate, this would increase the price, possibly decreasing demand, but would improve unit profitability and could better cover fixed costs and future investments.
Formulas Used:
Title | Formulas |
---|---|
Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Margin | Margin = ((PV HT – New PA HT) ÷ New PA HT) x 100 |
Application: Imaginarium Bookstore
States :
Librairie Imaginarium wants to analyze its margins on books to determine its future pricing strategy. The average purchase price excluding tax of a book is €15, and it wants to achieve an overall margin of €5 on 000 books sold.
Work to do :
- Find the unit margin needed to achieve the overall margin target.
- Calculate the unit selling price excluding tax to obtain this unit margin.
- What will the sales price including tax be if the applicable VAT is 5,5%?
- Evaluate the impact on total revenue if the company decides to sell the books at €20 excluding VAT instead.
- Provide strategic thinking on aligning pricing with customer expectations to maximize sales and margin.
Proposed correction:
-
The unit margin is calculated by dividing the overall margin by the quantity sold:
Unit margin = Overall margin ÷ Quantity sold.
Unit margin = 5 ÷ 000 = €1.
The required unit margin is €5. -
To calculate the selling price excluding VAT:
PV HT = PA HT + Unit margin.
PV HT = 15 + 5 = 20 €.
The selling price excluding VAT must be €20. -
For the sales price including VAT with a VAT of 5,5%:
PV incl. VAT = PV excl. VAT x (1 + VAT).
PV incl. VAT = 20 x 1,055 = €21,10.
The sales price including VAT is €21,10.
-
If the selling price excluding tax is €20, the total turnover is:
CA = PV HT x Quantity sold.
Turnover = 20 x 1 = €000.
A sale price of €20 excluding VAT generates a turnover of €20. -
Aligning prices with customer expectations may require market research to adjust price perception and maximize demand, while maintaining sufficient margin for economic viability.
Formulas Used:
Title | Formulas |
---|---|
Unit margin | Unit margin = Overall margin ÷ Quantity sold |
Selling price excluding tax | PV excluding tax = PA excluding tax + Unit margin |
Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
Turnover | CA = PV HT x Quantity sold |
Application: Radiance Beauty Salon
States :
Salon de Beauté Éclat is reviewing its manicure services to optimize its prices and profitability. The cost of purchasing components is €8 per service, and management wants to achieve a markup rate of 30%.
Work to do :
- Calculate the selling price excluding tax required to achieve the desired markup rate.
- Determine the amount of VAT if the applicable rate is 20%.
- What should be the sales price including VAT for the manicure service?
- Analyze the impact on margins if the purchase cost is reduced by €1.
- Propose a strategy to adjust prices during periods of low demand while preserving margin.
Proposed correction:
-
Let's use the formula for the markup rate:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = 8 ÷ (1 – 0,30) = €11,43.
The required selling price excluding VAT is €11,43. -
The amount of VAT is obtained by multiplying the sales price excluding VAT by the VAT rate:
VAT amount = PV excluding VAT x VAT
VAT amount = 11,43 x 0,20 = €2,286.
The VAT amount is €2,29 after rounding. -
For the sales price including VAT:
PV incl. tax = PV excl. tax + VAT amount
PV including tax = 11,43 + 2,29 = €13,72.
The sales price including VAT is €13,72.
-
If the purchase cost is reduced to €7, let's recalculate the margin:
PV excluding tax with a PA excluding tax of €7 = 7 ÷ (1 – 0,30) = €10.
The new margin is improved, positively impacting profitability. -
In times of low demand, adjusting prices can include strategic promotions while respecting profitability thresholds, for example with “packaged offers” increasing the perceived added value.
Formulas Used:
Title | Formulas |
---|---|
Selling price excluding tax | PV HT = PA HT ÷ (1 – Mark rate) |
VAT amount | VAT amount = PV excluding VAT x VAT |
Sales price including tax | PV incl. tax = PV excl. tax + VAT amount |
Reduced selling price excluding VAT | PV HT = PA HT ÷ (1 – Mark rate) with reduced PA HT |
Application: CycloFlex Workshop
States :
Atelier CycloFlex, a bicycle maintenance specialist, wants to better understand its costs in order to set prices for its new spare parts. A specific model has a purchase cost excluding tax of €25 and CycloFlex wants to achieve a margin rate of 55%.
Work to do :
- Calculate the required selling price excluding tax to obtain the desired margin rate.
- What would be the sales price including tax if the applicable VAT is 20%?
- Estimate the additional financial margin if CycloFlex increased its selling price excluding tax by €5.
- Analyze the financial results if the quantity sold increases from 300 to 400 units.
- Discuss the strategic implications of repositioning the product line at a premium price.
Proposed correction:
-
Let's use the margin rate formula:
PV HT = PA HT x (1 + Margin rate).
PV excluding tax = 25 x (1 + 0,55) = €38,75.
The required selling price excluding VAT is €38,75. -
For the sales price including VAT:
PV incl. VAT = PV excl. VAT x (1 + VAT).
PV incl. VAT = 38,75 x 1,20 = €46,50.
The sales price including VAT is €46,50. -
With a selling price excluding tax of €43,75:
Additional margin = New PV HT – Initial PV HT
Additional margin = 43,75 – 38,75 = €5.
This generates an additional margin of €5 per unit.
-
If the quantity sold increases, the additional turnover:
Initial turnover = 38,75 x 300 = €11.
New turnover = 38,75 x 400 = €15.
This increases turnover by €3 with an increase in units sold. -
Positioning products at premium prices could attract new premium customers but would require increased communication and marketing efforts to ensure perceived value.
Formulas Used:
Title | Formulas |
---|---|
Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
Additional margin | Additional margin = New PV HT – Initial PV HT |
Turnover | CA = PV HT x Quantity sold |
Application: Pastry Sweets and Delights
States :
Patisserie Douceurs et Délices wants to establish a pricing strategy for its new pastries. The cost of manufacturing a pastry is €0,80, and they want to achieve a margin rate of 60%.
Work to do :
- Determine the selling price excluding tax required to achieve this margin rate.
- What is the sales price including VAT with 5,5% VAT?
- If the markup rate achieved is 40%, what is the difference with the margin rate?
- What would be the overall margin for 1 pastries sold?
- Analyze margins strategically if production costs increase by 10%.
Proposed correction:
-
For the 60% margin rate, let's use the formula:
PV HT = PA HT x (1 + Margin rate).
PV excluding tax = 0,80 x (1 + 0,60) = €1,28.
The selling price excluding VAT is €1,28. -
For the sales price including VAT:
PV incl. VAT = PV excl. VAT x (1 + VAT).
PV incl. VAT = 1,28 x 1,055 = €1,35.
The sales price including VAT is €1,35. -
With a markup rate of 40%:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = 0,80 ÷ (1 – 0,40) = €1,33.
The difference between the 60% margin rate and the 40% markup rate results in different pricing strategies.
-
The overall margin for 1 pastries sold:
Unit margin = PV HT – PA HT = 1,28 – 0,80 = 0,48 €.
Overall margin = Unit margin x Quantity sold = 0,48 x 1 = €000.
The overall margin achieved is €480. -
A 10% increase in production costs requires price readjustments to maintain margins, while taking into account the tolerance thresholds of potential customers.
Formulas Used:
Title | Formulas |
---|---|
Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
Selling price excluding VAT (brand) | PV HT = PA HT ÷ (1 – Mark rate) |
Unit margin | Unit margin = PV excluding tax – PA excluding tax |
Overall margin | Overall margin = Unit margin x Quantity sold |
Application: Pharmacy Health Plus
States :
Pharmacie Santé Plus is about to launch a new product and wants to determine the break-even point. The purchase cost excluding tax per unit is €20, and each unit will sell at a selling price excluding tax of €35. The monthly fixed costs are €3.
Work to do :
- Calculate the unit margin achieved per product.
- Determine the number of units needed to reach the break-even point.
- What impact would it have if fixed costs increased by €500?
- Estimate the revenue needed to cover these fixed and variable costs.
- Propose a marketing strategy to increase sales volume to reach break-even faster.
Proposed correction:
-
The unit margin is given by the difference between the selling price excluding VAT and the purchase cost excluding VAT:
Unit margin = PV HT – PA HT = 35 – 20 = 15 €.
The unit margin is €15. -
To reach the break-even point, divide fixed costs by the unit margin:
Break-even point = Fixed costs ÷ Unit margin
Break-even point = 3 ÷ 000 = 15 units.
You need to sell 200 units to break even. -
With an increase in fixed costs to €3, let's recalculate:
Break-even point = 3 ÷ 500 = 15 units.
It will be necessary to sell approximately 234 units to break even.
-
For turnover:
CA = PV HT x Number of units for profitability.
CA = 35 x 200 = €7.
The required turnover is €7. -
A marketing strategy may include targeted promotions, upselling, and increased local advertising to increase awareness and sales volumes.
Formulas Used:
Title | Formulas |
---|---|
Unit margin | Unit margin = PV excluding tax – PA excluding tax |
Break even | Break-even point = Fixed costs ÷ Unit margin |
Turnover | CA = PV HT x Number of units for profitability |
Application: TransiMov Logistics Company
States :
The transport company TransiMov is reviewing its shipping costs to increase its competitiveness. The estimated variable costs per package are €3, and the average rate charged to its customers is €8. The monthly fixed costs are estimated at €4.
Work to do :
- What is the gross unit margin per shipment?
- Calculate the break-even point in number of shipments.
- If TransiMov decides to reduce its customer rate by €1, how will this impact the break-even point?
- What turnover should TransiMov aim for to cover its costs according to the initial break-even point?
- Develop a proposal for diversification of services that could help increase shipment volume.
Proposed correction:
-
The unit margin per shipment is the difference between the invoiced rate and the variable costs:
Unit margin = Customer rate – Variable costs = 8 – 3 = €5.
The unit margin is €5. -
To determine the break-even point:
Break-even point = Fixed costs ÷ Unit margin
Break-even point = 4 ÷ 500 = 5 shipments.
TransiMov needs to complete 900 shipments to reach the break-even point. -
If the fare is reduced to €7:
New unit margin = 7 – 3 = €4.
Break-even point = 4 ÷ 500 = 4 shipments.
The rate reduction increases the required break-even point to 1 shipments.
-
To reach the initial break-even point:
CA required = Price charged x Number of shipments = 8 x 900 = €7.
The turnover required for the break-even point is €7. -
TransiMov could introduce express services, temporary storage solutions or return services to attract more customers and increase the number of shipments.
Formulas Used:
Title | Formulas |
---|---|
Unit margin | Unit margin = Customer rate – Variable costs |
Break even | Break-even point = Fixed costs ÷ Unit margin |
Turnover | CA = Rate charged x Number of shipments |
Application: Restaurant La Fourchette d'Or
States :
Restaurant La Fourchette d'Or specializes in gourmet cuisine. With the recent inflation of food costs, they have to adjust their calculations to maintain their margins. The average cost of a dish is €12, and they want to keep a markup of 50%.
Work to do :
- Calculate the selling price excluding tax required to maintain the desired markup rate.
- What is the sales price including VAT if the applicable VAT is 20%?
- If food costs increase by 25%, how will this impact the net selling price?
- Estimate the gross margin generated for 200 dishes sold at the calculated price.
- Propose strategies to reduce the impact of cost increases without compromising customer-perceived quality.
Proposed correction:
-
For a 50% markup rate, let's use:
PV HT = PA HT ÷ (1 – Mark rate).
PV excluding tax = 12 ÷ (1 – 0,50) = €24.
The selling price excluding VAT must be €24. -
With 20% VAT:
PV incl. VAT = PV excl. VAT x (1 + VAT).
PV incl. VAT = 24 x 1,20 = €28,80.
The sales price including VAT is €28,80. -
If costs increase to €15 (25% increase):
New PV excluding VAT = 15 ÷ (1 – 0,50) = €30.
The increase in costs brings the PV excluding tax to €30.
-
For 200 dishes sold at the initial price:
Gross unit margin = PV excluding tax – PA excluding tax = 24 – 12 = €12.
Total gross margin = 12 x 200 = €2.
The gross margin generated is €2. -
Diversifying sourcing, reformulating recipes with seasonal ingredients or offering rotating menus can help control costs as long as perceived quality remains high.
Formulas Used:
Title | Formulas |
---|---|
Selling price excluding tax | PV HT = PA HT ÷ (1 – Mark rate) |
Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT) |
New PV HT | New PV HT = New PA HT ÷ (1 – Mark rate) |
Unit gross margin | Unit gross margin = PV excluding tax – PA excluding tax |
Total gross margin | Total gross margin = Unit gross margin x Quantity sold |