Summary
Application: Bio Direct Food
States :
The company "Alimentation Bio Direct" specializes in the sale of organic food products. To optimize its price management, the company wants to analyze the cost price and margins on its flagship products. One of the products, a box of organic cereals, has a purchase cost of €3 excluding tax per unit, and demand for this product is constantly increasing.
Work to do :
- Calculate the selling price excluding tax required to obtain a margin rate of 30% on the box of cereal.
- If the box of cereal is sold at a price of €4 excluding VAT, what is the mark-up rate achieved?
- How many units must be sold to achieve an overall margin of €1 by selling each box at €800 excluding VAT?
- Estimate the total cost to the company if it plans to sell 2 boxes in the next month.
- Discuss the strategic impact of a potential drop in purchasing costs to €2,50 on the sales pricing policy.
Proposed correction:
-
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
For a margin rate of 30%, let's rearrange the formula to find PV HT: PV HT = PA HT x (1 + (Margin rate ÷ 100)).
By replacing, PV excluding tax = €3 x (1 + (30 ÷ 100)) = €3 x 1,30 = €3,90.
The selling price excluding tax must be €3,90 to obtain a margin rate of 30%. -
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, Markup rate = ((€4 – €3) ÷ €4) x 100 = (€1 ÷ €4) x 100 = 25%.
The mark rate achieved is 25%. -
Unit margin = PV excluding tax – PA excluding tax = €4 – €3 = €1.
To achieve an overall margin of €1, the quantity to sell = €800 ÷ €1 = 800 boxes.
1 boxes need to be sold to reach this goal.
-
Total cost = purchase cost per unit x planned quantity.
Total cost = €3 x €2 = €000.
The total cost to sell 2 boxes will be €000. -
A reduction in the purchase cost to €2,50 would increase margins or allow the company to lower its prices to be more competitive.
This would provide more flexibility to modify the sales pricing strategy and potential market share gains.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| PV HT with desired margin rate | PA HT x (1 + (Margin rate ÷ 100)) |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
Application: Tech Solutions SAS
States :
Tech Solutions SAS is a company engaged in the development of essential software for SMEs. It wants to evaluate the efficiency of its sales team and the cost of its solutions. Currently, a software is offered at €1 excluding VAT per unit with a purchase cost of €200.
Work to do :
- Determine the margin rate made on each software sale.
- Calculate the sales volume required to generate €100 in net turnover.
- If the purchase cost drops to €750, what would be the new markup rate if the sale price remains unchanged?
- Analyze the minimum number of sales to be made to cover a monthly fixed cost of €50 with current conditions.
- Discuss the strategic implications of increasing the selling price to €1 on brand perception.
Proposed correction:
-
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, Margin rate = ((€1 – €200) ÷ €800) x 800 = (€100 ÷ €400) x 800 = 100%.
The margin rate achieved is 50%. -
Sales volume = Net sales ÷ Net sales.
Sales volume = €100 ÷ €000 = 1.
So you have to sell 84 software programs to reach this turnover because you can't sell a fraction of software. -
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
New PA excluding tax = €750.
Markup rate = ((€1 – €200) ÷ €750) x 1 = (€200 ÷ €100) x 450 = 1%.
The new markup rate would be 37,5%.
-
Minimum number of sales = Fixed cost ÷ Unit margin.
Unit margin = PV excluding tax – PA excluding tax = €1 – €200 = €800.
Minimum number of sales = €50 ÷ €000 = 400.
At least 125 software packages must be sold to cover fixed costs. -
A price increase to €1 could improve brand perception by positioning it as premium.
However, customers' price sensitivity should be analyzed to avoid a drop in sales.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Sales volume | Turnover excluding tax ÷ PV excluding tax |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Unit margin | PV HT – PA HT |
| Minimum number of sales | Fixed cost ÷ Unit margin |
Application: The Artisan's Pottery
States :
Les Poteries de L'Artisan sells handmade craft objects, mainly terracotta vases. A vase is purchased for €15 excluding VAT and sold for €30 excluding VAT. Having noticed an increase in raw materials, they want to adjust their pricing and production strategy.
Work to do :
- Calculate the markup rate currently being made on a vase.
- If the selling price increases to €35 excluding VAT while maintaining the purchase cost, what will the new margin rate be?
- What should be the new maximum purchase cost to maintain a margin rate of 60% if the selling price is set at €35 excluding VAT?
- Estimate the optimal annual stock to order to meet an average demand of 600 vases per year with an ordering cost of €80 and a storage cost of €2 per vase.
- Consider the consequences on customer perception of a price increase in the context of crafts, discuss support strategies.
Proposed correction:
-
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, Markup rate = ((€30 – €15) ÷ €30) x 100 = (€15 ÷ €30) x 100 = 50%.
The markup rate is 50%. -
New margin rate = ((New PV HT – PA HT) ÷ PA HT) x 100.
New margin rate = ((€35 – €15) ÷ €15) x 100 = (€20 ÷ €15) x 100 = 133,33%.
The new margin rate would be 133,33%. -
To maintain a margin rate of 60%, PV HT = PA HT x (1 + (Margin rate ÷ 100)).
PA HT = PV HT ÷ (1 + (Margin rate ÷ 100)).
New max HT PA = €35 ÷ (1 + (60 ÷ 100)) = €35 ÷ 1,60 = €21,875.
The maximum purchase cost must be €21,88 (rounded) to maintain this margin rate.
-
QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).
Substituting, QEC = ?((2 x 600 x 80) ÷ 2) = ?(96 ÷ 000) = ?2 = 48 vases.
The optimal stock to order annually is 220 vases (rounded). -
A price increase could be perceived negatively or justified by the increased craft value.
It might be relevant to communicate on the superior quality or the limitation of the series to promote the rarity and authenticity of the products.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
| Purchase cost with margin rate | PV HT ÷ (1 + (Margin rate ÷ 100)) |
| Economic Order Quantity (EOQ) | ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Application: Flash Mode
States :
Mode Éclair is a ready-to-wear clothing brand. For a t-shirt sold at €25 excluding VAT, the purchase cost is €10 excluding VAT. The company is questioning its profitability and is considering different strategies to optimize its pricing and volumes.
Work to do :
- Calculate the unit margin amount for each t-shirt sold.
- At what selling price excluding tax would the markup rate be 40%?
- If the purchase cost increases by 30%, what would be the new selling price excluding tax to apply to maintain the same current margin rate?
- Estimate the overall margin if the company sells 800 t-shirts.
- Analyze the impact on sales volume if Mode Éclair decided to incorporate 20% VAT into the sales price.
Proposed correction:
-
Unit margin = PV HT – PA HT.
Unit margin = €25 – €10 = €15.
Each t-shirt sold generates a margin of €15. -
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100 = 40%.
Let's rearrange the formula: PV HT = PA HT ÷ (1 – (Market rate ÷ 100)).
PV excluding tax = €10 ÷ (1 – (40 ÷ 100)) = €10 ÷ 0,60 = €16,67.
The selling price excluding tax must be €16,67 for a markup rate of 40%. -
New PA excluding tax = €10 + (€10 x 30 ÷ 100) = €13.
Current margin rate = ((€25 – €10) ÷ €10) x 100 = 150%.
New PV HT = New PA HT x (1 + (Margin rate ÷ 100)).
New PV excluding VAT = €13 x (1 + 1,5) = €13 x 2,5 = €32,50.
The new selling price excluding tax must be €32,50 to maintain the same margin rate.
-
Overall margin = Unit margin x quantity sold.
Overall margin = €15 x 800 = €12.
The overall margin will be €12 for 000 t-shirts sold. -
Adding VAT will increase the sales price including VAT, which could negatively influence sales volume depending on the price elasticity of customers.
An analysis of consumer behaviour in the face of the resulting price increase would be necessary to anticipate the impact.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Selling price for markup rate | PA HT ÷ (1 – (Market rate ÷ 100)) |
| New price for the same margin rate | New PA HT x (1 + (Margin rate ÷ 100)) |
| Overall margin | Unit margin x quantity sold |
Application: Pharmacy Health Plus
States :
The Santé Plus pharmacy sells prescription drugs. The price excluding tax of a drug is €18, while its purchase cost is €12. The pharmacist wants to better manage his prices and charges.
Work to do :
- Determine the current margin rate for each drug sold.
- What would be the selling price excluding tax to obtain a margin rate of 50%?
- If the purchase cost drops to €10, calculate the new markup rate, maintaining the current sale price of €18 excluding VAT.
- Calculate the WCR if the company has inventory of €2 and supplier debts of €000.
- Discuss what strategy to adopt if the government decides to impose a ceiling price lower than the current selling price.
Proposed correction:
-
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€18 – €12) ÷ €12) x 100 = (€6 ÷ €12) x 100 = 50%.
The current margin rate is 50%. -
For a margin rate of 50%, PV HT = PA HT x (1 + (Margin rate ÷ 100)).
PV excluding tax = €12 x (1 + (50 ÷ 100)) = €12 x 1,50 = €18.
The selling price excluding tax is already €18 for a margin rate of 50%. -
New PA excluding tax = €10.
New markup rate = ((€18 – €10) ÷ €18) x 100 = (€8 ÷ €18) x 100 = 44,44%.
The new markup rate would be 44,44%.
-
BFR = Current assets – Current liabilities.
Current assets = Stock = €2.
Current liabilities = Trade payables = €1.
WCR = €2 – €000 = €1.
The BFR is €500. -
If a price ceiling is imposed, the pharmacist may have to reduce margins or negotiate lower supply costs.
Other expenses will also need to be adjusted to maintain profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Selling price for desired margin rate | PA HT x (1 + (Margin rate ÷ 100)) |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| BFR | Current assets – Current liabilities |
Application: Harmony Music School
States :
Harmonie Music School offers piano lessons to its students. The price of a lesson is set at €50 excluding VAT, and the cost of purchasing educational services is €30 per lesson. The school wishes to develop financial projections for the coming year.
Work to do :
- Calculate the unit margin made by the school for each course.
- What volume of courses must be sold to generate an overall margin of €10?
- If the course fee is changed to €60, while maintaining the same teaching cost, what would be the new markup rate?
- Estimate the annual revenue if the school plans to teach 1 classes.
- Evaluate the financial and marketing implications of lowering fees to attract more students.
Proposed correction:
-
Unit margin = PV HT – PA HT.
Unit margin = €50 – €30 = €20.
The unit margin achieved is €20 per course. -
Overall margin = Unit margin x number of courses.
Number of courses = Overall margin ÷ Unit margin.
Number of courses = €10 ÷ €000 = 20 courses.
You need to sell 500 courses to reach this overall margin target. -
New mark rate = ((New PV HT – PA HT) ÷ New PV HT) x 100.
New markup rate = ((€60 – €30) ÷ €60) x 100 = (€30 ÷ €60) x 100 = 50%.
The new markup rate would be 50%.
-
Annual turnover = PV excluding tax x number of courses.
Annual turnover = €50 x €1 = €200.
The expected annual turnover is €60. -
Lowering prices could improve attractiveness and increase the number of registrations in the short term.
However, this could impact the perception of quality and require an adjustment of costs to maintain profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x number of courses |
| New mark rate | ((New PV HT – PA HT) ÷ New PV HT) x 100 |
| Annual sales | PV HT x number of courses |
Application: Cuisine & Delights
States :
The company Cuisine & Délices produces and sells delicate pastries. A cake costs €5 excluding VAT to make and is sold for €12 excluding VAT. In order to maximize their profits, they evaluate their margins and consider various pricing and volume scenarios.
Work to do :
- Calculate the current margin rate for his cakes.
- If the selling price is increased to €15 excluding VAT, what would the new margin rate be?
- Estimate the turnover needed to reach an overall margin of €20.
- Estimate the economic order quantity if the company has a demand for 3 cakes annually, an ordering cost of €000, and a storage cost of €100.
- Analyze the repercussions for the brand if Cuisine & Délices decides to reduce the price to €10.
Proposed correction:
-
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Margin rate = ((€12 – €5) ÷ €5) x 100 = (€7 ÷ €5) x 100 = 140%.
The current margin rate is 140%. -
New margin rate = ((New PV HT – PA HT) ÷ PA HT) x 100.
New margin rate = ((€15 – €5) ÷ €5) x 100 = (€10 ÷ €5) x 100 = 200%.
The new margin rate would be 200%. -
Unit margin = PV excluding tax – PA excluding tax = €12 – €5 = €7.
Necessary turnover = Overall margin ÷ Unit margin.
Turnover = €20 ÷ €000 = €7 x €2 = €857,14 (rounded to the nearest hundredth).
It is necessary to generate a turnover of €34.
-
QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).
Substituting, QEC = ?((2 x 3 x 000) ÷ 100) = ?(1) = 600 cakes.
The economic order quantity is 775 cakes. -
A price reduction could make the cakes more attractive to a wider audience but would reduce margins.
This strategy could cannibalize premium ranges if not properly differentiated.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| New margin rate | ((New PV HT – PA HT) ÷ PA HT) x 100 |
| Necessary turnover | Overall margin ÷ Unit margin x PV HT |
| Economic Order Quantity | ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Application: Digital Workshops
States :
Ateliers Numériques designs and manufactures printed circuit boards for electronic devices. Currently, the price excluding VAT of a unit is €50 with a production cost of €35. The company anticipates an increase in raw materials and wants to explore possible strategies.
Work to do :
- Calculate the markup rate currently being realized per unit.
- If the cost of production increases by 20%, what would be the selling price excluding tax required to maintain a margin rate of 40%?
- What production volume would allow an overall margin of €50 to be achieved with the current margin rate?
- Deduce the implications on the working capital requirement if Ateliers Numériques significantly increases its production cycle.
- Discuss possible strategic options to mitigate the impact of rising raw materials prices.
Proposed correction:
-
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Markup rate = ((€50 – €35) ÷ €50) x 100 = (€15 ÷ €50) x 100 = 30%.
The markup rate is 30%. -
New production cost = €35 + (€35 x 20 ÷ 100) = €42.
For a margin rate of 40%, PV HT = New PA HT x (1 + (Margin rate ÷ 100)).
PV excluding tax = €42 x 1,40 = €58,80.
The necessary selling price excluding tax would be €58,80. -
Unit margin = PV excluding tax – PA excluding tax = €50 – €35 = €15.
Required production volume = Overall margin ÷ Unit margin.
Production volume = €50 ÷ €000 = 15 units.
Approximately 3 units would need to be produced.
-
By increasing the production cycle, the company may need more funds to finance current inventories.
This results in a higher working capital requirement requiring financial adjustments. -
To counter rising raw material costs, the company can explore group purchasing, substitute with cheaper alternatives, optimize the supply chain or re-evaluate design needs to reduce costs.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Selling price to maintain margin rate | New PA HT x (1 + (Margin rate ÷ 100)) |
| Required production volume | Overall margin ÷ Unit margin |
Application: Horizon Travel Agency
States :
Horizon Travel Agency offers all-inclusive holiday packages for customers. The cost of a package excluding VAT is €1 while the selling price is €200 excluding VAT. With the increase in market competitiveness, the agency must re-evaluate its pricing and marketing strategies.
Work to do :
- Calculate the gross margin in euros made on each package sold.
- What would be the new margin rate if the cost decreased to €1 excluding VAT for a selling price of €100 excluding VAT?
- If Horizon wants to keep a margin rate of 50%, what selling price excluding tax should it set if its cost increases to €1?
- Evaluate the impact on revenue if the agency sells 400 packages at this new rate.
- Think about a marketing strategy to promote this new rate and make it a lever of attractiveness.
Proposed correction:
-
Gross margin = PV excluding tax – PA excluding tax.
Gross margin = €1 – €800 = €1.
A gross margin of €600 is made on each package sold. -
New cost excluding tax = €1.
New margin rate = ((PV HT – New PA HT) ÷ New PA HT) x 100.
New margin rate = ((€1 – €800) ÷ €1) x 100 = (€1 ÷ €100) x 100 = 700%.
The new margin rate would be 63,64%. -
For a margin rate of 50%, PV HT = PA HT x (1 + (Margin rate ÷ 100)).
PV excluding tax = €1 x (300 + (1 ÷ 50)) = €100 x 1 = €300.
The selling price excluding tax must be set at €1.
-
Turnover = PV excluding tax x number of packages.
Turnover = €1 x 950 = €400.
The turnover would be €780 for 000 packages sold. -
To enhance this rate, the agency could highlight the quality of the services, offer additional free services, guarantee better value for money, and use testimonials from satisfied customers to reinforce the perception of value.
Formulas Used:
| Title | Formulas |
|---|---|
| Gross margin | PV HT – PA HT |
| New margin rate | ((PV HT – New PA HT) ÷ New PA HT) x 100 |
| Selling price to maintain margin rate | PA HT x (1 + (Margin rate ÷ 100)) |
| Turnover | PV HT x number of packages |