Summary
Application: Chocolate Flower
States :
The company Fleur de Chocolat, which specializes in the artisanal production of chocolates, wants to analyze the profitability of its flagship product, the "Délice" box of chocolates. You have the following data:
- Purchase price excluding VAT of a box: €8
- Selling price excluding VAT for a box: €12
- Quantity sold monthly: 500 boxes
Work to do :
- Calculate the margin rate of the “Délice” box sold by Fleur de Chocolat.
- Determine the markup rate.
- Calculate the overall margin made on monthly sales of “Délice” boxes.
- If the purchase price increases by 10%, what should the new selling price excluding tax be to maintain the same margin rate?
- Analyze the impact of these price increases on Fleur de Chocolat's sales strategy.
Proposed correction:
1.
The margin rate is calculated as follows:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Replacing: ((12 – 8) ÷ 8) x 100 = 50%.
The margin rate is 50%.
2.
The markup rate is calculated using the formula:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing: ((12 – 8) ÷ 12) x 100 = 33,33%.
The markup rate is 33,33%.
3.
The overall margin is obtained by:
Overall margin = Unit margin x Quantity sold.
Unit margin = PV HT – PA HT = 12 – 8 = 4 €
Overall margin = 4 x 500 = €2.
The overall margin is €2.
4.
If the purchase price increases by 10%, the new PA excluding tax will be:
New PA HT = 8 x (1 + 0,10) = €8,8.
To keep the same margin rate: New PV HT = PA HT x (1 + Margin rate ÷ 100).
New PV excluding VAT = 8,8 x (1 + 50 ÷ 100) = €13,2.
The new selling price excluding VAT should be €13,2.
5.
A price increase can affect demand. By increasing the selling price to maintain the margin, Fleur de Chocolat could lose price-sensitive customers. It is crucial to communicate quality or other added values to justify this increase.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Overall margin | Unit margin x Quantity sold |
| Unit margin | PV HT – PA HT |
| New PV HT | PA HT x (1 + Margin rate ÷ 100) |
Application: HighTechShop
States :
HighTechShop, a store specializing in electronic gadgets, wants to analyze its stock of a specific product – a hobby drone. The available information is:
- Purchase price excluding tax of a drone: €300
- Selling price excluding tax of a drone: €400
- Monthly sales: 150 drones
- Annual inventory cost: 12% of inventory value
- Order cost: €100 per order
Work to do :
- Calculate the margin rate for a drone sold by HighTechShop.
- Determine the amount of overall monthly margin obtained from drone sales.
- Calculate the Total Cost of Inventory (TCI) if the store orders 30 drones per order.
- If HighTechShop wants to reduce its inventory costs, how many drones should they keep in stock on average to minimize this cost (use QECC)?
- Evaluate the purchasing strategy that HighTechShop could adopt to improve its profitability without affecting the quality of service.
Proposed correction:
1.
The margin rate is determined by the formula:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Substituting, ((400 – 300) ÷ 300) x 100 = 33,33%.
The drone's margin rate is 33,33%.
2.
The unit margin is obtained by subtracting PA HT from PV HT, i.e. 400 – 300 = €100.
The overall monthly margin is: 100 x 150 = €15.
HighTechShop thus generates a monthly overall margin of €15 on drones.
3.
Total inventory cost (TIC) is calculated as the sum of ordering cost and carrying cost.
So CTI = (Ordering Cost ÷ Ordered Quantity) + (Annual Inventory Cost x Inventory Value ÷ 2).
Let's assume a regular order frequency of 30 drones per order:
- Inventory value for 30 drones at a time: 30 x 300 = €9
- Annual storage cost = 9 x 000% = €12
- CTI for an order = (100 ÷ 30) + (1 ÷ 080) = 2 + 3,33 = €540.
-
To minimize inventory cost, we use the formula QEC = ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost).
The annual demand is 150 x 12 = 1 drones.
QEC = ?((2 x 1 x 800) ÷ (100 x 300)) = ?((0,12) ÷ 360) = ?(000) = 36 drones. -
To improve profitability while maintaining quality of service, HighTechShop can negotiate discounts for volume purchasing, followed by orders at regular intervals in order to smooth out supply. Reducing ordering or storage costs will also help optimize results.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Overall margin | Unit margin x Quantity sold |
| Unit margin | PV HT – PA HT |
| Total Cost of Inventory (TCI) | (Ordering Cost ÷ Ordered Quantity) + (Annual Inventory Cost x Inventory Value ÷ 2) |
| QECC | ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Application: Health Plus Distribution
States :
Santé Plus Distribution is an SME specializing in the sale of medical equipment. One of their flagship products is the digital blood pressure monitor. The following information is collected:
- Purchase price excluding tax of a blood pressure monitor: €45
- Selling price excluding tax of a blood pressure monitor: €70
- Annual sales: 1 blood pressure monitors
- Storage cost: 10% of inventory value per year
- Order cost: €80 per order
Work to do :
- Calculate the mark rate of the digital blood pressure monitor.
- Determine the overall annual margin made on this product.
- What is the optimal number of blood pressure monitors to order at each replenishment to minimize inventory cost?
- If the order cost is reduced to €50, how much would the QEC change? Compare the impact of this reduction.
- Discuss supply management at Santé Plus Distribution and suggest possible improvements.
Proposed correction:
1.
The markup rate is calculated by:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Let's substitute: ((70 – 45) ÷ 70) x 100 = 35,71%.
The mark rate of the blood pressure monitor is 35,71%.
2.
The unit margin is determined by: PV HT – PA HT = 70 – 45 = €25.
The overall annual margin is: 25 x 1 = €000.
Santé Plus Distribution obtains an annual global margin of €25 on blood pressure monitors.
3.
The QEC is calculated by: QEC = ?((2 x Annual demand x Order cost) ÷ Storage cost).
QEC = ?((2 x 1 x 000) ÷ (80 x 45)) = ?((0,1) ÷ 160) = ?(000) = 4,5 blood pressure monitors.
4.
If the order cost decreases to €50, let's recalculate:
QEC with new order cost = ?((2 x 1 x 000) ÷ (50 x 45)) = ?((0,1) ÷ 100) = ?(000) = 4,5 blood pressure monitors.
The reduction in order costs allows the economic order quantity to be reduced from 189 to 149 blood pressure monitors.
5.
Santé Plus Distribution could benefit from improved demand forecasting and better order planning. A reduction in administrative costs and the automation of certain procurement processes could also improve their efficiency and profitability.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Overall margin | Unit margin x Quantity sold |
| Unit margin | PV HT – PA HT |
| QECC | ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Application: Nature and Balance
States :
Nature et Équilibre, an organic products store, wants to analyze the profitability of a popular essential oil. The known data are:
- Purchase cost excluding tax: €25 per bottle
- Selling price excluding VAT: €45 per bottle
- Annual quantity sold: 3 bottles
- Expected discount rate: 10% on the sale price
Work to do :
- Calculate the current markup rate of the essential oil.
- Determine the new unit margin after applying the discount.
- What would the margin rate be after applying the discount?
- Calculate the new annual overall margin if the discount is applied.
- Analyze the effects of this discount on the overall profitability of Nature et Équilibre.
Proposed correction:
1.
The current margin rate is:
Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
By evaluating: ((45 – 25) ÷ 25) x 100 = 80%.
Essential oil has a margin rate of 80%.
2.
Let's apply the discount:
Sale price after discount = 45 x (1 – 0,10) = €40,5.
New unit margin = 40,5 – 25 = €15,5.
3.
New margin rate:
((40,5 – 25) ÷ 25) x 100 = 62%.
After discount, the margin rate is reduced to 62%.
4.
New annual overall margin:
New unit margin x Quantity sold = 15,5 x 3 = €500.
The new annual overall margin is therefore €54.
5.
A 10% discount potentially improves competitiveness and can boost sales. However, it reduces the margin rate. Nature et Équilibre must assess whether the potential increase in sales volume will compensate for the decrease in unit margin.
Formulas Used:
| Title | Formulas |
|---|---|
| Current Margin Rate | ((PV HT – PA HT) ÷ PA HT) x 100 |
| Sale price after discount | PV HT x (1 – Discount rate) |
| New unit margin | PV discount – PA HT |
| New margin rate | ((PV discount – PA excluding tax) ÷ PA excluding tax) x 100 |
| New overall margin | New unit margin x Quantity sold |
Application: Fashion & Style Shop
States :
Boutique Mode & Style, a high-end clothing retailer, wants to evaluate the impact of a new line of leather jackets. Here is the available data:
- Purchase cost excluding tax per jacket: €100
- Selling price excluding VAT per jacket: €200
- Units sold annually: 1 jackets
- Additional marketing cost expected: €5
Work to do :
- Calculate the unit margin made on a jacket.
- Determine the overall annual profitability before marketing costs.
- What is the net profitability after including marketing costs?
- How many more jackets would need to be sold to offset this marketing cost?
- Analyze the impact of marketing on sales and suggest strategies to maximize profits.
Proposed correction:
1.
The unit margin is calculated by:
Unit margin = PV HT – PA HT = 200 – 100 = 100 €.
Each jacket generates a margin of €100.
2.
Overall annual profitability = Unit margin x Quantity sold = 100 x 1 = €000.
Profitability before marketing costs is €100.
3.
Net profitability = Overall profitability – Marketing cost = 100 – 000 = €5.
After marketing, net profitability is €95.
-
To offset the marketing cost, you need to sell:
Marketing cost ÷ Unit margin = 5 ÷ 000 = 100 additional jackets. -
Marketing can increase awareness and drive sales, but it comes at a cost. Boutique Mode & Style should target its market effectively and measure ROI by adjusting its campaigns to maximize the positive impact on profits.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall profitability | Unit margin x Quantity sold |
| Net profitability | Overall Profitability – Marketing Cost |
| Cost compensation | Marketing Cost ÷ Unit Margin |
Application: RestoBio Concept
States :
RestoBio Concept, wishing to optimize its purchases, is conducting an analysis on the purchase of organic ingredients. For whole wheat sold in bulk, here is the information:
- Excl. VAT purchase cost per kg: €2,5
- Selling price excluding tax per kg: €5
- Quantity sold monthly: 1 kg
- Storage cost: €0,1 per kg per month
- Order cost: €20 per order
Work to do :
- Calculate the markup rate for whole wheat.
- Determine the monthly margin earned from the sale of whole wheat.
- To minimize costs, how many kilograms of whole wheat should be ordered in each order?
- If RestoBio Concept considers a 10% reduction in the selling price, how much additional volume would it have to sell to maintain the same level of monthly profitability?
- Suggest improvements for RestoBio Concept inventory management.
Proposed correction:
1.
The markup rate is calculated as follows:
Mark rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Substitution: ((5 – 2,5) ÷ 5) x 100 = 50%.
The markup rate for whole wheat is 50%.
2.
Unit margin = PV HT – PA HT = 5 – 2,5 = 2,5 €.
Monthly margin = Unit margin x Quantity sold = 2,5 x 1 = €500.
The monthly margin is €3.
3.
For the QEC:
QEC = ?((2 x Monthly Demand x Ordering Cost) ÷ Storage Cost).
QEC = ?((2 x 1 x 500) ÷ 20) = ?(0,1) = 600 or approximately 000 kg.
4.
New unit margin with PV reduced by 10%: Reduced PV = 5 x (1 – 0,10) = €4,5.
New unit margin = 4,5 – 2,5 = €2.
To obtain an identical total margin, i.e. €3:
3 ÷ 750 = 2 kg.
RestoBio will have to sell 1 kg to maintain the same profitability.
5.
To improve inventory management, RestoBio could reduce replenishment times, negotiate better conditions with suppliers, or adopt digital inventory tracking technologies to better anticipate demand.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | ((PV HT – PA HT) ÷ PV HT) x 100 |
| Monthly margin | Unit margin x Quantity sold |
| QEC | ?((2 x Monthly Demand x Order Cost) ÷ Storage Cost) |
| New margin wanted | Total Margin ÷ New Unit Margin |
Application: Aesthetics Elegance
States :
Esthétique Élégance, a beauty salon, is looking into introducing a new deluxe manicure service. Here are the facts:
- Material cost excluding tax per service: €15
- Selling price excluding tax per service: €45
- Monthly customer forecast: 120 services
- Initial launch cost: €1
Work to do :
- Calculate the unit margin for each deluxe manicure service performed.
- Determine the expected overall monthly margin before taking into account the launch cost.
- What is the monthly net profitability if we consider that the launch cost is amortized over six months?
- How many additional benefits are needed to cover the launch cost in the first month?
- Evaluate the potential impact of this new offering on all of the show's activities.
Proposed correction:
1.
The unit margin is defined by:
Unit margin = PV HT – PA HT = 45 – 15 = 30 €.
The unit margin for a deluxe manicure is €30.
2.
Calculation of the monthly overall margin:
Overall margin = Unit margin x Quantity sold = 30 x 120 = €3.
The anticipated overall margin is €3.
3.
The monthly amortized cost over 6 months is:
Launch cost ÷ 6 = 1 ÷ 200 = €6.
Net profitability = Overall margin – Amortized cost = 3 – 600 = €200.
The monthly net profitability is €3.
4.
To cover €1 from the first month:
Additional services = Launch cost ÷ Unit margin = 1 ÷ 200 = 30 services.
5.
Adding this service can attract new customers, diversify the offer and increase turnover, however, it could also require regular evaluation to adjust pricing and costs according to actual demand.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | PV HT – PA HT |
| Overall margin | Unit margin x Quantity sold |
| Net profitability | Overall Margin – Amortized Cost |
| Necessary services | Launch cost ÷ Unit margin |
Application: Advanced Technology
States :
Advanced Technology, a software company, wants to assess the viability of a new educational software. Data available:
- Development cost excluding tax: €80
- Selling cost excluding tax per license: €100
- Marginal cost per license: €10
- Sales target: 3 licenses in the first year
Work to do :
- Calculate the unit margin per license sold.
- Determine the gross profitability on the first year sales target.
- What is the break-even point in terms of the number of licenses to sell?
- How many licenses need to be sold to achieve a target profit of €20 in the first year?
- Provide arguments for or against the introduction of this new educational software.
Proposed correction:
1.
The unit margin is determined by:
Unit margin = Selling price excluding tax – Marginal cost = 100 – 10 = €90.
A margin of €90 is made per license sold.
2.
Gross profitability = Unit margin x Target = 90 x 3 = €000.
The expected gross profitability for 3 sales is €000.
3.
Break-even point = Development cost ÷ Unit margin = 80 ÷ 000 ? 90 licenses.
It takes about 889 licenses to break even.
4.
For a profit of €20
Total number of licenses = (Development cost + Target profit) ÷ Unit margin = (80 + 000) ÷ 20 ? 000 licenses.
1 licenses must be sold to achieve this goal.
5.
Such a project can position Advanced Technology as a leader in educational solutions with the potential for significant passive income. Make sure the target market is well defined and receptive. However, the initial cost represents a risk if demand does not match expectations.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | Selling price excluding VAT – Marginal cost |
| Gross profitability | Unit Margin x Target |
| Break even | Development cost ÷ Unit margin |
| Total number of licenses | (Development Cost + Target Profit) ÷ Unit Margin |
Application: Green Garden
States :
The Jardin Vert nursery wants to assess the profitability of a rare variety of plants that it plans to market. Here is the data:
- Purchase cost excluding tax per plant: €8
- Selling price excluding VAT: €20
- Specific constraint: 30 unsold plants lead to an additional cost of €240
- Forecast: 600 plants per year
Work to do :
- Calculate the unit margin generated per plant sold.
- Determine the annual gross margin from the forecasts made.
- What is the financial impact of anticipated unsold items (30 plants) on gross margin?
- How many plants must be sold to cover the cost of unsold items?
- Suggest strategies to minimize the impact of unsold items on profitability.
Proposed correction:
1.
The unit margin is the difference between the selling price excluding VAT and the purchase cost excluding VAT:
Unit margin = 20 – 8 = €12.
Each plant sold brings in a margin of €12.
2.
Annual gross margin = Unit margin x Quantity = 12 x 600 = €7.
The potential annual gross margin is €7.
3.
Financial impact of 30 unsold plants:
- Additional cost = €240
- Correction of the gross margin after correction: 7 – 200 = €240.
4.
Number of plants needed to sell to offset cost of unsold items:
Cost of unsold items ÷ Unit margin = 240 ÷ 12 = 20 plants.
An additional 20 plants must be sold to offset the cost of unsold items.
5.
To minimize the impact of unsold items, Jardin Vert could enrich its loyalty program, effectively manage its inventory in real time, and diversify its sales channels to maximize exposure to a wider market.
Formulas Used:
| Title | Formulas |
|---|---|
| Unit margin | Selling price excluding VAT – Purchase cost excluding VAT |
| Annual gross margin | Unit margin x Quantity sold |
| Financial impact | Additional cost of unsold items |
| Compensation for unsold costs | Cost of unsold items ÷ Unit margin |