Welcome to this article on exercises on business calculations and more precisely on 11 different corrected commercial calculations. Here you will find no less than 11 detailed corrected management exercises on commercial calculations for Operational Management.
At the end of this article, you will know how to calculate brand rates, margin rates, sales prices excluding tax or tax without any worries.
In this section:
- Application: FashionStar Clothing Store
- Application: Prestige Boutique
- App: Concept Connect
- Application: Stellar Electronics
- Application: Leclerc Company
- Application: “Chic & Choc” Clothing Store
- Application: Fashion Elan
- Application: The little restaurateur
- Application: The Maddison fashion boutique
- Application: Patricks Restaurant
- Application: Entertainment Unlimited Inc.
Application: FashionStar Clothing Store
States :
FashionStar is a clothing boutique that sells high-end items. One of their popular items is a leather jacket, which they buy from a supplier for €150 excluding VAT each. The company adds a 60% margin on each jacket sold. The applicable VAT rate is 20%. FashionStar offers a 10% discount on the sale price.
Work to do :
1. What is the selling price excluding tax (PV excluding VAT) of the jacket?
2. What is the sales price all taxes included (PV incl. VAT) of the jacket?
3. Calculate the unit margin of the jacket.
4. If FashionStar sells 10 jackets, what is the overall margin?
5. What is the price of the jacket after discount?
Proposed correction:
1. The PV excluding tax is determined by the formula: PV excluding tax = PA excluding tax + (PA excluding tax x Margin Rate). By inserting the numbers, we obtain: PV excluding tax = €150 + (€150 x 0,60) = €240.
2. The PV including VAT is calculated by adding VAT to the PV excluding VAT: PV including VAT = PV excluding VAT + (PV excluding VAT x VAT rate). If we insert the figures, we obtain: PV including tax = €240 + (€240 x 0,20) = €288.
3. The unit margin is calculated by subtracting the PA excluding tax from the PV excluding tax: Unit margin = PV excluding tax – PA excluding tax. If we plug in the numbers, we get: Unit margin = €240 – €150 = €90.
4. The overall margin is calculated by multiplying the unit margin by the quantity sold: Overall margin = Unit margin x quantity sold. If we plug in the numbers, we get: Overall margin = €90 x 10 = €900.
5. The discounted price is calculated by subtracting the discount from the PV including tax: Discounted Price = PV including tax – (PV including tax x Discount Rate). If we plug in the numbers, we get: Discount Price = €288 – (€288 x 0,10) = €259,20.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| Including tax = excluding tax + (excluding tax x VAT rate) | Calculation of the Price including tax |
| Excl. tax = incl. tax / (1 + VAT rate) | Calculation of the Price excluding tax |
| Unit margin = PV excluding tax – PA excluding tax | Calculation of Margin per unit |
| Overall margin = Unit margin x quantity sold | Calculation of the overall margin (total profit) |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100) | Margin Rate Calculation |
| Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100) | Calculation of the Brand Rate |
| Discounted Price = Original Price – (Original Price x Discount Rate) | Calculation of the Price after Discount |
Application: Prestige Boutique
States :
The Prestige Boutique sells an assortment of luxury products. As part of their business approach, they provide significant discounts to their regular customers. For one of their featured products, a leather handbag sold for €240 excluding VAT with a 15% discount. The handbag was purchased from a fashion house for a cost of €110 excluding tax. The applicable VAT is 20%.
Work to do :
1. What is the sales price including tax of the bag?
2. How much does the Prestige Boutique earn on the sale of each bag (unit margin) before and after discount?
3. How much discount is given for each bag?
4. What is the overall margin made on the sale of 100 bags?
5. What is the margin rate on the sale of each bag before and after the discount?
Proposed correction:
1. Sales price including tax = Sales price excluding tax x (1 + VAT rate)
= 240€ x (1 + 20/100)
= 288 €
2. Unit margin before discount = Sales price excluding tax – Purchase price excluding tax
= €240 – €110
= 130 €
Sales price excluding tax after discount = Sales price excluding tax – (Sales price excluding tax x Discount rate)
= 240€ – (240€ x 15/100)
= 204 €
Unit margin after discount = Sales price excluding tax after discount – Purchase price excluding tax
= €204 – €110
= 94 €
3. Discount amount = Sales price excluding tax x Discount rate
= 240€ x 15/100
= 36 €
4. Overall margin = Unit margin x quantity sold
= €94 x 100
= €9
5. Margin rate before discount = ((Selling price excluding tax – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100
= ((240€ – 110€) ÷ 110€) x 100
= 118,18%
Margin rate after discount = ((Selling price excluding tax after discount – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100
= ((204€ – 110€) ÷ 110€) x 100
= 85,45%
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| Sales price including tax = Sales price excluding tax x (1 + VAT rate) | To calculate the sales price including tax |
| Unit margin = Sales price excluding tax – Purchase price excluding tax | To calculate unit margin |
| Discount amount = Sales price excluding tax x Discount rate | To calculate the discount amount |
| Overall margin = Unit margin x quantity sold | To calculate the overall margin |
| Margin rate = ((Selling price excluding tax – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100 | To calculate the margin rate |
App: Concept Connect
States :
Concept Connect is a distributor of electronic equipment. Following negotiations with a supplier, the company purchases a certain quantity of flat screens at a purchase price excluding tax of €200 per unit. It plans to apply a margin rate of 30% on the purchase price excluding tax.
Concept Connect has agreed with its B2B customers a 5% discount on the sales price excluding tax. In addition, the company must apply a VAT rate of 20%.
The company sold a total of 100 flat screens during the month.
Work to do :
1. Calculate the unit sales price excluding VAT of the flat screen.
2. Calculate the unit sales price including tax.
3. Calculate the amount of the unit discount.
4. Calculate the unit margin and the overall margin of the company for the month concerned.
5. Calculate the company's margin rate.
Proposed correction:
1. The unit sales price excluding tax (PV excluding tax) is calculated by adding the margin rate to the purchase price excluding tax, according to the formula: PV excluding tax = PA excluding tax + (PA excluding tax x Margin rate). SO :
PV excluding tax = €200 + (€200 x 30%) = €200 + €60 = €260.
2. The unit sales price including tax (PV including tax) is obtained by adding VAT to the PV excluding tax, following the formula: PV including tax = PV excluding tax + (PV excluding tax x VAT rate). SO :
PV including tax = €260 + (€260 x 20%) = €260 + €52 = €312.
3. The amount of the unit discount is obtained from the PV excluding tax and the discount rate, according to the formula: Discount = PV excluding tax x Discount rate. SO :
Discount = €260 x 5% = €13.
4. The unit margin is the difference between the sales price excluding tax and the purchase price excluding tax, i.e.: Unit margin = PV excluding tax – PA excluding tax. SO :
Unit margin = €260 – €200 = €60.
The overall margin is the unit margin multiplied by the quantity sold, i.e.: Overall margin = Unit margin x Quantity. SO :
Overall margin = €60 x 100 = €6.
5. The margin rate is the unit margin divided by the purchase price excluding tax, multiplied by 100, i.e.: Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100). SO :
Margin rate = ((€260 – €200) ÷ €200) x 100 = 30%.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| PV excluding tax = PA excluding tax + (PA excluding tax x Margin rate) | Formula for calculating the Sales Price excluding taxes |
| PV including VAT = PV excluding VAT + (PV excluding VAT x VAT rate) | Formula for calculating the Sale Price All Taxes Included |
| Discount = PV excluding VAT x Discount rate | Discount calculation formula |
| Unit margin = PV excluding tax – PA excluding tax | Formula for calculating Unit Margin |
| Overall margin = Unit margin x Quantity | Formula for calculating the overall margin |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Formula for calculating the Margin Rate |
Application: Stellar Electronics
Stellar Electronics is an electronic equipment distribution company. It offers a variety of products such as high-quality televisions, computers and audio systems. For this exercise, we will focus on one of their flagship products: a well-known brand laptop resold at an attractive price.
States :
The company Stellar Electronics buys a laptop from a well-known brand for a cost of €800 excluding tax. Added to this is an import tax of 5%. Stellar Electronics decides to sell this computer for a sales price excluding tax (PV excluding tax) of €1. The VAT rate applied is 200%.
Work to do :
1. Calculate the purchase price excluding tax (PA excluding VAT) of the computer including the import tax.
2. Calculate the Sales Price all taxes included (PV including VAT) for this computer.
3. Determine Stellar Electronics' unit margin on the sale of this computer.
4. If Stellar Electronics sells 500 of these computers, what would its overall margin be?
5. What are Stellar Electronics' margin and brand rates on computer?
Proposed correction:
1. The PA excluding tax of the computer is calculated by adding the import tax to the initial purchase price: €800 x (1 + 5%) = €840.
2. The PV including VAT is calculated by adding VAT (20%) to the PV excluding VAT (€1). So, PV including tax = €200 x (1 + 200%) = €1.
3. The unit margin is the difference between the PV HT and the PA HT. Unit margin = PV excluding tax – PA excluding tax = €1 – €200 = €840.
4. The overall margin is the unit margin multiplied by the quantity sold. Overall margin = unit margin x quantity sold = €360 x 500 = €180.
5. The margin rate is calculated using the following formula: ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100). Margin rate = ((€1 – €200) ÷ €840) x 840) = 100%. And the mark rate is calculated using the following formula: ((PV HT – PA HT) ÷ PV HT) x 42,85). Brand rate = ((€100 – €1) ÷ €200) x 840) = 1%.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| PA excluding tax = Initial purchase price x (1 + import tax) | Calculates the purchase price excluding tax by including the import tax. |
| PV including VAT = PV excluding VAT x (1 + VAT) | Calculates the sales price all taxes included. |
| Unit margin = PV excluding tax – PA excluding tax | Calculate the unit margin. |
| Overall margin = Unit margin x quantity sold | Calculates the overall margin. |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Determines the margin rate. |
| Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 | Determines the mark rate. |
Application: Leclerc Company
States :
The Leclerc company, specializing in the sale of high-tech products, has decided to launch a new range of televisions. The purchase price excluding tax (HT) set by the supplier is €300 per unit. The Leclerc company has decided to apply a margin of 30% on each unit sold. After a week of launch, 100 units were sold. A few days later, to stimulate sales, the company offers a 10% discount on each unit sold. The VAT rate is 20%.
Work to do :
1. Calculate the Sales Price excluding tax (PV excluding tax) of each unit.
2. Calculate the Sales Price all taxes included (PV including VAT).
3. Determine the unit margin.
4. Calculate the overall margin after one week.
5. If the Leclerc company applies a 10% discount, what will be the new PV excluding tax and the new PV including tax?
Proposed correction:
1. To calculate the PV excluding tax, we use the formula: PV excluding tax = PA excluding tax + (PA excluding tax * Margin rate). Which gives us: PV excluding tax = €300 + (€300 * 30/100) = €390.
2. To determine the PV including tax, we use the formula: PV including tax = PV excluding tax + (PV excluding tax * VAT rate). Which gives us: PV including tax = €390+ (€390 * 20/100) = €468.
3. The unit margin is determined by: Unit margin = PV excluding tax – PA excluding tax. Which gives: Unit margin = €390 – €300 = €90.
4. The overall margin is determined by the formula: Overall margin = Unit margin x quantity sold. Which gives us: Overall margin = €90 x 100 = €9.
5. If the company applies a 10% discount, the new PV excluding tax will be: New PV excluding tax = PV excluding tax – (PV excluding tax * Discount rate). Which gives: New PV excluding tax = €390 – (€390 * 10/100) = €351. Equivalently, the new PV including VAT = New PV excluding VAT + (New PV excluding VAT * VAT rate), i.e.: New PV including VAT = €351 + (€351 * 20/100) = €421,2.
Summary of Formulas Used:
| concepts | Packages |
|---|---|
| PV HT | PV excluding tax = PA excluding tax + (PA excluding tax * Margin rate) |
| PV including tax | PV including VAT = PV excluding VAT + (PV excluding VAT * VAT rate) |
| Unit margin | Unit margin = PV excluding tax – PA excluding tax |
| Overall margin | Overall margin = Unit margin x quantity sold |
| New PV excluding tax with discount | New PV excluding tax = PV excluding tax – (PV excluding tax * Discount rate) |
| New PV including tax with discount | New PV including VAT = New PV excluding VAT + (New PV excluding VAT * VAT rate) |
Application: “Chic & Choc” Clothing Store
States :
The company “Chic & Choc” specializes in the sale of designer clothing. She purchased a batch of leather jackets for €75 each excluding tax. She wants to achieve a margin of 60% on the Purchase Price excluding tax (PA excluding tax) of each jacket. Following an arrangement with a regular customer of the company, a 15% discount is granted on the sales price excluding tax (PV excluding tax).
Work to do :
1) What is the Sales Price excluding tax (PV excluding VAT) of the jacket?
2) What is the Sales Price All Taxes Included (PV including VAT) of the jacket with a VAT rate of 20%?
3) What is the amount of the discount granted to regular customers?
4) What is the amount of the unit margin and the overall margin if the company sells 200 jackets?
5) What is the margin rate and brand rate?
Proposed correction:
1) To calculate the PV excluding tax, we apply the formula: PA excluding tax + (PA excluding tax * margin rate). Here, this gives: €75 + (€75 * 60/100) = €120.
2) To calculate the PV including VAT, we apply the formula: PV excluding VAT + (PV excluding VAT * VAT rate). Here, this gives: €120 + (€120 * 20/100) = €144.
3) To calculate the amount of the discount, we apply the formula: PV excluding VAT * discount rate. Here, this gives: €120 * 15/100 = €18.
4) To calculate the unit margin, we apply the formula: PV HT – PA HT. Here, this gives: €120 – €75 = €45. For the overall margin, this would be: Unit margin x quantity sold, i.e.: €45 x 200 = €9.
5) The margin rate is obtained with the formula: ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100, i.e. ((€120 – €75) ÷ €75) x 100 =60%. The brand rate is obtained with the formula: ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100, i.e. ((€120 – €75) ÷ €120) x 100 = 37,5%.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| PV excluding tax = PA excluding tax + (PA excluding tax * margin rate) | Calculation of the Sales Price excluding taxes |
| PV including VAT = PV excluding VAT + (PV excluding VAT * VAT rate) | Calculation of the Sale Price All Taxes Included |
| Discount amount = PV excluding tax * discount rate | Calculation of the discount amount |
| Unit margin = PV excluding tax – PA excluding tax | Calculation of unit margin |
| Overall margin = Unit margin x quantity sold | Calculation of the overall margin |
| Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 | Calculation of the margin rate |
| Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 | Calculation of the mark rate |
Application: Fashion Elan
States :
Fashion Elan is a ready-to-wear boutique offering high-end fashion items. One day, Pablo, the store manager, spotted a cashmere sweater that he wanted to add to his collection. The wholesaler sells the sweater to Pablo for €100 excluding VAT per unit. Pablo wants to apply a margin rate of 40%. It also decides to offer a 5% discount on the PV including tax as part of a promotional operation.
Work to do :
1) What will be the sales price excluding tax (PV) of this cashmere sweater?
2) What will be the sales price all taxes included (PV including VAT) taking into account the VAT rate of 20%?
3) What will be the value of the discount granted on the PV including tax?
4) What will be the unit margin and the overall margin if Pablo sells 50 sweaters?
5) What will be the brand rate of this sweater?
Proposed correction:
1) To find the PV excluding tax, we use the following formula: PA excluding tax + [(Margin rate x PA excluding tax) ÷100]. We have PA excluding tax = €100 and margin rate = 40%. By replacing these values, we have: €100 + [(40 x 100) ÷100]= €140. The sales price excluding tax of this cashmere sweater is therefore €140.
2) To determine the PV including tax, we use the following formula: PV excluding tax + [(VAT rate x PV excluding tax) ÷100]. The VAT rate is 20%. So €140 + [(20 x 140) ÷100] = €168. The sales price, all taxes included, of this cashmere sweater is €168.
3) The value of the discount is calculated with the following formula: [(Discount rate x Initial price) ÷100]. So, [(5 x 168) ÷100] = €8,40. The discount granted on this cashmere sweater is therefore €8,40.
4) The unit margin is calculated by subtracting the purchase price excluding tax from the selling price excluding tax. So, €140 – €100 = €40 is the unit margin. To find the overall margin, we multiply the unit margin by the quantity sold, here 50 sweaters. So €40 x 50 = €2000 is the overall margin.
5) To determine the brand rate, we use the following formula: [(Sales price excluding VAT – Purchase price excluding VAT) ÷ Sales price excluding VAT] x 100. By replacing the values, we have: [(140 € – €100) ÷ €140] x 100 = 28,57%. The brand rate of this cashmere sweater is therefore 28,57%.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| Sales price including tax | Sales Price excluding VAT + VAT |
| VAT | (VAT rate x Sales price excluding tax) ÷ 100 |
| Unit margin | Sales price excluding tax – Purchase price excluding tax |
| Overall margin | Unit margin x quantity sold |
| Margin rate | ((Selling price excluding tax – Purchase price excluding tax) ÷ Purchase price excluding tax) x 100 |
| Brand taxes | ((Sales price excluding tax – Purchase price excluding tax) ÷ Sales price excluding tax) x 100 |
| Hand off | (Discount rate x Initial price) ÷ 100 |
Application: The little restaurateur
States :
Le “Petit Restaurateur” is a restaurant that specializes in traditional French dishes. For this year, he generates a large profit by selling one of his signature dishes, “Coq au Vin”. The data relating to this dish this year are as follows:
– Purchase price excluding tax (PA excluding tax) of coq au vin: €10
– Discount rate on purchase: 5,5%
– The sales price excluding tax (PV excluding tax) of this dish is €15
– The quantity sold of this dish in the year: 5000 units
– The VAT rate is 20%
Work to do :
1. Calculate the sales price including tax (PV including tax) of the “Coq au Vin”
2. Calculate the VAT amount
3. Calculate the unit margin on this dish
4. Calculate the overall margin generated by this dish in the year
5. Calculate the margin rate and brand rate on this dish
Proposed correction:
1. Sales price including VAT (PV including VAT) = PV excluding VAT + (PV excluding VAT x VAT rate)
PV incl. VAT = €15 + (€15 * 20%) = €15 + €3 = €18
2. Amount of VAT = PV excluding VAT x VAT rate
VAT = €15 x 20% = €3
3. Unit margin = PV excluding tax – PA excluding tax
Unit margin = €15 – €10 – (€10 x 5.5%) = €15 – €10 – €0,55 = €4,45
4. Overall margin = Unit margin x Quantity sold
Overall margin = €4,45 x 5000 = €22
5. a) Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100%
Margin rate = ((€15 – €10) ÷ €10) x 100% = 50%
b) Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100%
Brand rate = ((€15 – €10) ÷ €15) x 100% = 33,33%
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Sales price excluding tax (PV excluding tax) | Purchase price excluding VAT (PA excluding VAT) + Margin excluding VAT |
| Sales price including tax (PV including tax) | PV excluding VAT + (PV excluding VAT x VAT rate) |
| VAT | PV excluding VAT x VAT rate |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
| Hand off | PV excluding VAT x discount rate |
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100% |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100% |
Application: The Maddison fashion boutique
States :
The Maddison fashion boutique sells a set of clothes for €60 excluding tax (retail price excluding tax). The VAT rate is 20%. Maddison negotiated a 5% discount on the sales price excluding tax. The purchase price excluding tax of the set is €30. The store has sold 150 in the past month.
Work to do :
1. Calculate the sales price including tax of the set.
2. Calculate the VAT amount for this set.
3. Calculate the discount amount on a set.
4. What is the unit margin made on all the clothes?
5. What is the overall margin achieved last month?
Proposed correction:
1. To calculate the sales price including tax, we use the formula PV including tax = (PV excluding tax x (1+VAT rate/100)). Which gives: €60 x (1 + 20/100) = €72. So the selling price including tax of the set is €72.
2. To calculate the VAT amount, we use the formula PV excluding VAT x VAT rate/100. Which gives: €60 x 20/100 = €12. So the VAT amount for this set is €12.
3. To calculate the discount amount, we use the formula PV excluding VAT x Discount rate/100. Which gives: €60 x 5/100 = €3. So the amount of the discount on a set is €3.
4. To calculate the unit margin, we use the formula PV HT – PA HT. Which gives: €60 – €30 = €30. So the unit margin made on all the clothes is €30.
5. To calculate the overall margin, we use the formula Unit margin x quantity sold. Which gives: €30 x 150 = €4500. So the overall margin achieved last month is €4500.
Summary of Formulas Used:
– Sales price including tax: PV including tax = PV excluding tax x (1+VAT rate/100)
– Amount of VAT: VAT = PV excluding VAT x VAT rate/100
– Discount amount: Discount = PV excluding tax x Discount rate/100
– Unit margin: Unit margin = PV excluding tax – PA excluding tax
– Overall margin: Overall margin = Unit margin x quantity sold
Application: Patricks Restaurant
States :
Patricks restaurant has decided to sell new drinks. One of them is a bottle of red wine “Blaye Côtes de Bordeaux” whose purchase price excluding taxes (PA excl. VAT) is €5.
It also offers a 10% discount on the sales price excluding tax (PV excluding tax). The applicable VAT rate is 20%.
Work to do :
1. Calculate the sales price excluding tax (PV excluding tax).
2. Calculate the discount amount.
3. After the discount, calculate the new sales price excluding tax (PV excluding tax).
4. Calculate the VAT amount.
5. Calculate the sales price all taxes included (PV including tax).
6. Calculate the unit margin.
7. Calculate the overall margin if the company sells 200 bottles.
8. Calculate the margin rate.
9. Calculate the mark rate.
Proposed correction:
1. The sales price excluding tax (PV excluding tax) is calculated taking into account the desired margin rate. Let's assume that the company would like to have a margin rate of 30%, so we apply this formula: PV excluding tax = PA excluding tax + (PA excluding tax x margin rate). So PV excluding tax = €5 + (€5 x 30 ÷ 100) = €6,5.
2. The amount of the discount is 10% on the PV excluding VAT, that is to say €6,5 x 10 ÷ 100 = €0,65.
3. The new PV excluding tax after discount is therefore €6,5 – €0,65 = €5,85.
4. The amount of VAT is 20% on the new PV excluding tax, i.e. €5,85 x 20 ÷ 100 = €1,17.
5. The PV including VAT is therefore the new PV excluding VAT + amount of VAT, i.e. €5,85 + €1,17 = €7,02.
6. The unit margin is PV excluding tax – PA excluding tax, i.e. €5,85 – €5 = €0,85.
7. The overall margin is Unit margin x quantity sold, i.e. €0,85 x 200 = €170.
8. The margin rate is ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100, i.e. ((€5,85 – €5) ÷ €5) x 100 = 17%.
9. The brand rate is ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100, i.e. ((€5,85 – €5) ÷ €5,85) x 100 = 14,5%.
Summary of Formulas Used:
| Item | Formulas |
|---|---|
| Margin rate | (PV HT – PA HT) ÷ PA HT x 100 |
| Brand taxes | (PV HT – PA HT) ÷ PV HT x 100 |
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
| Sales price including tax | PV excluding tax + VAT amount |
Application: Entertainment Unlimited Inc.
States :
Entertainment Unlimited Inc., a company that sells electronic games, offers its customers a diverse range of products. Recently they launched a new electronic game whose costs are as follows:
* Unit acquisition cost (PA excluding tax): €40
* Unit management fees: €3
* Discount rate offered by the supplier: 20%
The company plans to sell 500 units of this new product.
Work to do :
1. Calculate the Net Purchase Price excluding tax (PAN excluding tax) after discount.
2. Calculate the Unit Cost Price excluding VAT (PRU excluding VAT).
3. Calculate the Sales Price excluding tax (PV excluding tax) considering that the company wishes to achieve a margin of 50% on the PRU excluding tax.
4. Calculate the amount of VAT and the sales price including tax (PV including tax) considering a VAT rate of 20%.
5. Calculate the overall margin made by the company following the sale of the 500 units.
Proposed correction:
1. The Net Purchase Price excluding tax (PAN excluding tax) after discount is calculated by subtracting the discount granted from the purchase excluding tax. So, PAN excluding tax = (PA excluding tax * (1- discount rate)) = €40 * (1-20%) = €32.
2. To calculate the unit cost price excluding tax (PRU excluding tax), we add the unit acquisition cost to the unit management fee. So, PRU excluding tax = PAN excluding tax + management fees = €32 + €3 = €35.
3. The Sales Price excluding tax (PV excluding tax) is calculated as follows: PV excluding tax = PRU excluding tax + (PRU excluding tax * margin rate on cost) = €35 + (€35 * 50%) = €52,5 .
4. The amount of VAT is calculated by multiplying the PV excluding VAT by the VAT rate: VAT = PV excluding VAT * VAT rate = €52,5 * 20% = €10,5. And the Sales Price including tax (PV including tax) is calculated by adding the PV excluding tax to VAT, i.e. PV including tax = PV excluding tax + VAT = €52,5 + €10,5 = €63.
5. The overall margin achieved by the company following the sale of 500 units can be calculated by multiplying the unit margin by the quantity sold. The Unit Margin is the difference between the PV excluding VAT and the PRU excluding VAT. So, Unit margin = PV excluding tax – PRU excluding tax = €52,5 – €35 = €17,5. Therefore, the gross margin is Overall margin = Unit margin x quantity sold = €17,5 x 500 = €8750.
Summary of Formulas Used:
| Parameter | Formulas |
|---|---|
| Net Purchase Price excluding tax (PAN excluding tax) | PAN HT = PA HT * (1 – discount rate) |
| Unit cost price excluding tax (PRU excluding tax) | PRU excluding tax = PAN excluding tax + management fees |
| Sales price excluding tax (PV excluding tax) | PV excluding tax = PRU excluding tax + (PRU excluding tax * margin rate on cost) |
| VAT | VAT = PV excluding VAT * VAT rate |
| Sales price including tax (PV including tax) | PV including VAT = PV excluding VAT + VAT |
| Unit margin | Unit margin = PV excluding tax – PRU excluding tax |
| Overall margin | Overall margin = Unit margin x quantity sold |