Summary
Application: The Golden Delight
States :
The company Le Délice Doré, specialized in the production of luxury chocolates, wants to optimize its commercial strategy. Here are the financial data for one of their flagship products: intense dark chocolate. Its purchase price excluding tax is €8,50 and they want to apply a margin rate of 50%. Their annual storage cost is €1,20 per unit, and they currently place 12 orders per year with an order cost of €25. Their annual sales reach 3 units.
Work to do :
- Calculate the selling price excluding tax required to achieve the desired margin rate.
- Determine the amount of VAT at 20% for this product.
- Calculate the selling price including tax per unit of chocolate.
- Evaluate the economic order quantity (EOQ).
- Analyze the implications of achieving the desired margin rate on the profitability of the company.
Proposed correction:
-
To calculate the excluding tax selling price required to achieve a margin rate of 50%, use the formula: PV excluding tax = PA excluding tax x (1 + Margin rate).
Let's replace, €8,50 x (1 + 0,50) = €12,75.
The selling price must be €12,75 excluding VAT per unit to achieve the desired margin rate. -
To calculate the amount of VAT at 20%: VAT = PV excluding VAT x VAT rate.
Replacing, €12,75 x 0,20 = €2,55.
The VAT amount for each unit is €2,55. -
The sales price including tax per unit is calculated by adding VAT: PV including tax = PV excluding tax + VAT.
By replacing, €12,75 + €2,55 = €15,30.
The sales price including tax per unit is therefore €15,30.
-
Calculate the QEC with the formula: QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).
Substituting, QEC = ?((2 x 3 x 600) ÷ 25) = 1,20 or approximately 387,30 units.
The economic order quantity is therefore approximately 388 units. -
Achieving the desired margin rate can improve the company's profitability by increasing the profit per unit sold. However, it is important to consider how this price might affect demand.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| VAT amount | VAT = PV excluding VAT x VAT rate |
| Sales price including tax | PV including VAT = PV excluding VAT + VAT |
| Economic Order Quantity (EOQ) | QEC = ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost) |
Application: Virtuous Bikes
States :
Vélos Vertueux, a bicycle rental and sales company, wants to adjust its prices according to costs and margins. For an electric bicycle model, the purchase cost is €1 excluding VAT. They are considering a brand rate of 200%. In addition, the company plans to increase their annual sales by 30 units to achieve better financial performance. Currently, Vélos Vertueux's annual fixed costs amount to €500.
Work to do :
- Calculate the selling price excluding VAT to achieve the desired markup rate.
- Determine the profit per bike sold if the markup rate is met.
- Evaluate the annual turnover excluding tax with the increase in sales.
- Deduce whether the company will be able to cover its fixed costs with the planned sales volume.
- Analyze the potential impact of adjusting the selling price on the competitiveness of Vélos Vertueux.
Proposed correction:
-
To calculate the selling price excluding VAT with a markup rate of 30%, use the formula: PV excluding VAT = PA excluding VAT ÷ (1 – Markup rate).
Let's replace, €1 ÷ (200 – 1) = approximately €0,30.
The selling price excluding tax to reach the desired markup rate is €1. -
The profit per bike is calculated by: Profit = PV HT – PA HT.
Substituting, €1 – €714,29 = €1.
The profit per bike sold will therefore be €514,29. -
The annual turnover excluding tax is calculated as: CA excluding tax = PV excluding tax x Annual sales.
Replacing, €1 x 714,29 = €500.
The annual turnover excluding tax will therefore be €857.
-
To check fixed cost coverage: Fixed Costs < Total Profit = Profit per Unit x Annual Sales.
By replacing, €514,29 x 500 = €257, which is more than the fixed costs of €145.
The company will be able to cover its fixed costs with the planned sales volume. -
Adjusting the selling price can support competitiveness by improving the perception of quality, but could reduce demand if competitors offer similar products at lower prices.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV HT = PA HT ÷ (1 – Mark rate) |
| Profit per unit | Profit = PV HT – PA HT |
| Turnover excluding tax | CA HT = PV HT x Annual sales |
| Fixed cost coverage | Total Profit = Profit per Unit x Annual Sales |
Application: Farmhouse Flavors
States :
Saveurs Fermières is a farm that sells organic vegetable baskets. The production cost of a basket is €12,00 excluding VAT. Currently, the baskets are sold at €24,00 including VAT, with a VAT of 5,5%. The company wants to understand the distribution of its costs and margins to adjust its pricing strategy.
Work to do :
- Calculate the selling price excluding VAT.
- Determine the current margin rate made on each basket.
- Evaluate the markup rate on the selling price excluding tax.
- Discuss the possibility for Saveurs Fermières to increase the margin without changing the sales price including tax.
- Analyze how reducing production costs would affect the overall pricing strategy.
Proposed correction:
-
To calculate the selling price excluding VAT: PV excluding VAT = PV including VAT ÷ (1 + VAT rate).
By replacing, €24,00 ÷ (1 + 0,055) = approximately €22,75.
The selling price excluding VAT is approximately €22,75. -
The margin rate is calculated by: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.
Replacing, ((€22,75 – €12,00) ÷ €12,00) x 100 = 89,58%.
The current margin rate is 89,58%. -
The markup rate is calculated by: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, ((€22,75 – €12,00) ÷ €22,75) x 100 = 47,25%.
The markup rate is 47,25%.
-
To increase the margin without changing the sales price including tax, Saveurs Fermières could focus on reducing production costs or on optimizing processes to maintain margins while avoiding increasing the price for the customer.
-
A reduction in production costs would directly improve margins and could allow investment in marketing or sustainable development initiatives, while preserving a competitive pricing policy.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV HT = PV TTC ÷ (1 + VAT rate) |
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
Application: Excellence Screens
States :
Écrans Excellence specializes in touch screens for high-tech companies. One of its models, the Ultraclear screen, costs €400 excluding VAT to produce. They want to increase their markup rate to 35%. The current market places sales prices around €650 including VAT with a VAT of 20%.
Work to do :
- Determine the selling price excluding tax which corresponds to a markup rate of 35%.
- Calculate the difference between the current selling price and the price needed to achieve the desired markup rate.
- Estimate the amount of VAT at 20% on the future sale price excluding VAT.
- Discuss the potential impact on demand if Écrans Excellence increases its selling price.
- Analyze whether achieving a 35% markup rate is viable in a context where the market imposes already defined prices.
Proposed correction:
-
For a markup rate of 35%, use the formula: PV HT = PA HT ÷ (1 – Markup rate).
Let's replace, €400 ÷ (1 – 0,35) = €615,38.
A sales price excluding VAT of €615,38 is required to reach the markup rate of 35%. -
The difference between the current and required selling price is: Difference = Current PV – Required PV.
As the market sets the VAT at €650, the current PV excluding VAT = €650 ÷ 1,2 ? €541,67.
Difference = €615,38 – €541,67 = €73,71.
There is a difference of €73,71 to reach the new mark rate. -
The amount of VAT is: VAT = PV excluding VAT x VAT rate.
Replacing, €615,38 x 0,20 = €123,08.
€123,08 VAT would be applicable on the revised net sales price.
-
Any significant price increase could potentially dampen demand if the market is competitive. It is essential to analyse whether the increase could be justified by added value, such as technological improvement or better after-sales service.
-
Achieving the 35% markup rate could be difficult if market prices are highly competitive. The strategy could be to differentiate the offering or add value elements to justify a higher price and build customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV HT = PA HT ÷ (1 – Mark rate) |
| Price difference | Difference = PV required – Current PV |
| VAT amount | VAT = PV excluding VAT x VAT rate |
Application: Luminous Lingerie
States :
Lumineuse Lingerie, a luxury underwear brand, is exploring the viability of a new line of bras. The production cost is €30,00 excluding VAT per unit, and they plan to sell them at €65,00 including VAT with a VAT of 20%.
Work to do :
- Calculate the selling price excluding tax of this new line.
- Determine the markup rate for this new line.
- Estimate the unit profit when the bra is sold at the expected price.
- Work out the financial implications if Lumineuse Lingerie were to reduce its price including tax to €60,00.
- Provide an analysis of the effect that a price drop could have on the brand image of Lumineuse Lingerie.
Proposed correction:
-
The selling price excluding VAT is calculated by: PV excluding VAT = PV including VAT ÷ (1 + VAT rate).
By replacing, €65,00 ÷ 1,20 = €54,17.
The selling price excluding VAT is €54,17. -
The markup rate is calculated by: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, ((€54,17 – €30,00) ÷ €54,17) x 100 = 44,61%.
The markup rate of this new line is 44,61%. -
The unit profit is calculated as: Profit = PV HT – PA HT.
As a replacement, €54,17 – €30,00 = €24,17.
The unit profit is €24,17.
-
If the price including tax is reduced to €60,00, then:
New PV excluding VAT = €60,00 ÷ 1,20 = €50,00.
New profit = €50,00 – €30,00 = €20,00.
The company would make a reduced unit profit of €4,17 compared to the original. -
A price decrease could potentially damage the brand image, which is positioned in the luxury segment, by giving a perception of less value. It is crucial to balance price competitiveness while preserving the attributes of quality and exclusivity.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV HT = PV TTC ÷ (1 + VAT rate) |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
| Unit profit | Profit = PV HT – PA HT |
Application: Urban Hairdressing
States :
Urban Coiffure wants to revise its rates for its premium services. The average cost of a premium service is €25,00 excluding VAT, and the salon wants to apply a margin rate of 60%. Currently, these rates include a VAT of 20%.
Work to do :
- Calculate the price needed to meet the desired margin rate.
- Estimate the amount of VAT to add to the estimated selling price excluding VAT.
- Estimate the final sales price including VAT after adding VAT.
- Develop a conclusion on the impact of a higher rate on the customer experience.
- Provide an analysis of the potential additional costs if Urban Coiffure increases the quality of its services in parallel with the new prices.
Proposed correction:
-
The selling price excluding tax is calculated by: PV excluding tax = PA excluding tax x (1 + Margin rate).
Replacing, €25,00 x 1,60 = €40,00.
The selling price excluding tax must be €40,00 to respect the desired margin rate. -
The amount of VAT is: VAT = PV excluding VAT x VAT rate.
Replacing, €40,00 x 0,20 = €8,00.
The VAT to be added is €8,00. -
The sales price including tax is: PV including tax = PV excluding tax + VAT.
By replacing, €40,00 + €8,00 = €48,00.
The final sales price including VAT is €48,00.
-
A higher price could influence the perception of value and the customer service experience, where quality and satisfaction must be maximized in parallel.
-
If the quality of services increases, additional costs may arise from training, premium materials, and facility improvements, which must be estimated to ensure that profit margins are maintained.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| VAT amount | VAT = PV excluding VAT x VAT rate |
| Sales price including tax | PV including VAT = PV excluding VAT + VAT |
Application: Small Steering Wheels
States :
Petits Volants is a company engaged in the manufacture of baby clothes. The cost of manufacturing a onesie is €10,00 excluding VAT, and the company wants to sell them with a margin rate of 40%. The prices are displayed including VAT at €21,60 with a VAT of 5,5%.
Work to do :
- Calculate the selling price excluding tax according to the desired margin rate.
- Determine whether the current pricing policy meets the desired margin rate.
- Estimate the amount of VAT on the current price including VAT.
- Propose price adjustments if necessary to achieve the target margin rate.
- Analyze the effect of rationalization of production costs on pricing policy.
Proposed correction:
-
To respect a margin rate of 40%, use the formula: PV HT = PA HT x (1 + Margin rate).
Replacing, €10,00 x 1,40 = €14,00.
The selling price excluding tax must be €14,00 to respect the desired margin rate. -
Let's calculate the current PV excluding VAT for comparison: Current PV excluding VAT = €21,60 ÷ 1,055 = €20,47.
The current selling price is therefore well above the requirement for the margin rate, but it should be checked that it does not lead to an overvaluation for the market. -
To determine the amount of VAT on the current price including VAT, we use: Current VAT = €20,47 x 0,055 = €1,13.
The VAT amount on the current price is €1,13.
-
To adjust the prices, it would be necessary to analyze the target and the market to determine whether a price of €14,00 excluding VAT is competitive, while guaranteeing the commercial effort so as not to lose the current perception of the product.
-
A rationalization of production costs could make it possible to lower the price without affecting the margin and thus become more competitive without sacrificing the profitability of Petits Volants.
Formulas Used:
| Title | Formulas |
|---|---|
| Desired selling price excluding VAT | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| Conversion Price including tax to excluding tax | Current PV excluding VAT = PV including VAT ÷ (1 + VAT rate) |
| Current VAT amount | Current VAT = PV excluding VAT x VAT rate |
Application: Robot House
States :
Maison des Robots is a store specializing in the sale of educational robotics kits. One of their flagship products, the Advanced Kit, has a purchase price of €150 excluding VAT. They want to set a price that reflects a 20% markup. The store wants to find out how this markup will affect their annual financial results if the expected demand is 1 kits.
Work to do :
- Calculate the required selling price excluding tax for a markup rate of 20%.
- Estimate the expected annual turnover excluding tax with the sale of 1 kits.
- Determine the total profit expected from the annual sale of these kits.
- Propose a strategy to increase profitability without affecting pricing policy.
- Analyze how implementing promotions could affect profit margins.
Proposed correction:
-
For a markup rate of 20%, use the formula: PV HT = PA HT ÷ (1 – Markup rate).
Substituting, €150 ÷ (1 – 0,20) = €187,50.
The selling price excluding VAT must be €187,50 to achieve the desired markup rate. -
The expected net turnover is calculated by: Net turnover = Net sales x Quantity.
By replacing, €187,50 x €1 = €000.
The expected annual turnover is €187. -
The total expected profit is: Total profit = (PV HT – PA HT) x Quantity.
Replacing, (€187,50 – €150) x 1 = €000.
The total expected profit is €37.
-
To increase profitability, Maison des Robots could explore increasing their sales volume through collaborations with educational institutions or programmers, thus maintaining high and profitable volumes.
-
Although promotions may boost sales in the short term, they can affect margins by reducing selling prices and must be planned carefully to ensure a positive contribution to the bottom line.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding VAT for markup rate | PV HT = PA HT ÷ (1 – Mark rate) |
| Expected net sales | CA HT = PV HT x Quantity |
| Total profit | Total profit = (PV HT – PA HT) x Quantity |
Application: Land Works
States :
Travaux en Terroir produces and sells eco-responsible agricultural tools. The purchase cost of a sustainable spade is €25,00 excluding VAT and the company wants to achieve a margin rate of 55%. By having their audience both professional and amateur, Travaux en Terroir wants to understand how to optimize their distribution strategy.
Work to do :
- Calculate the selling price excluding tax to achieve a margin rate of 55%.
- Determine the sales price including VAT with a VAT of 5,5%.
- Evaluate the markup rate for this pricing strategy.
- Discuss the strategic implications of selling to distributors versus direct selling.
- Analyze how the perception of eco-responsibility could influence the pricing strategy.
Proposed correction:
-
Use the formula: PV HT = PA HT x (1 + Margin rate).
By replacing, €25,00 x (1 + 0,55) = €38,75.
The selling price excluding tax required to achieve the desired margin rate is €38,75. -
To calculate the sales price including tax: VAT inclusive = VAT excluding tax x (1 + VAT rate).
Replacing, €38,75 x 1,055 = €40,94.
The sales price including VAT is €40,94. -
The markup rate is calculated by: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.
Replacing, ((€38,75 – €25,00) ÷ €38,75) x 100 = 35,48%.
The markup rate is 35,48%.
-
Selling to distributors can expand reach but reduce margin through wholesale pricing, while direct selling retains full margin with a limited audience. Negotiating power for each channel needs to be assessed.
-
The eco-responsible perception could help justify a higher price if the market values these attributes, while integrating an educational format into the strategy to raise awareness and build customer loyalty.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding VAT according to margin | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| Sales price including tax | PV including VAT = PV excluding VAT x (1 + VAT rate) |
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |