Summary
Application: Gourmet Tradition
States :
Gourmet Tradition is a company specializing in the artisanal production of jams. The company wants to analyze its prices to maximize its margins while remaining competitive. You are responsible for examining some financial aspects to help Gourmet Tradition make informed decisions.
Work to do :
- Calculate the selling price excluding VAT if the purchase price excluding VAT of a jar of jam is €4 and the company wants a margin rate of 30%.
- Determine the unit margin if the selling price excluding tax is set at €7 for the same product.
- Gourmet Tradition wants to understand the impact of a 10% reduction in its selling price excluding tax, initially set at €7. What will the new selling price excluding tax be?
- Estimate the monthly turnover excluding tax if the company sells 300 pots per month at a selling price excluding tax of €7.
- Consider the implications for the business if it increases its margin rate to 40% without changing the pre-tax purchase price.
Proposed correction:
-
To calculate the selling price excluding tax with a margin rate of 30%, use the formula:
PV excluding tax = PA excluding tax x (1 + Margin rate)
PV excluding tax = €4 x (1 + 0,30) = €5,20
The selling price excluding tax should be €5,20 to achieve a margin rate of 30%. -
The unit margin is obtained by the formula:
Unit margin = PV excluding tax – PA excluding tax
Unit margin = €7 – €4 = €3
The unit margin is €3. -
The new selling price excluding VAT after a 10% reduction from the initial price of €7 is calculated as follows:
New PV HT = Initial PV x (1 – 0,10)
New PV excluding VAT = €7 x (1 – 0,10) = €6,30
The new selling price excluding VAT is €6,30.
-
The monthly turnover excluding tax is calculated as follows:
Monthly net sales = Quantity sold x net sales
Monthly turnover excluding tax = 300 x 7 € = 2 €
The monthly turnover excluding tax is €2. -
By increasing the margin rate to 40%, without changing the HT PA, the company will have to adjust its sales prices to maintain its margins. This change could affect its competitiveness on the market if prices increase too much.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| Unit margin | Unit margin = PV excluding tax – PA excluding tax |
| New selling price excluding VAT | New PV HT = initial PV x (1 – reduction) |
| Monthly turnover excluding tax | Monthly net sales = Quantity sold x net sales |
Application: TechNow Solutions
States :
TechNow Solutions is a growing start-up specializing in the sale of innovative electronic gadgets. To better manage its margins and inventory, the marketing team is seeking your expertise for certain financial and commercial analyses.
Work to do :
- If an electronic gadget is purchased by TechNow Solutions for €60, determine the desired selling price excluding VAT, with a markup rate of 25%.
- TechNow Solutions made a sale of 150 gadgets at a unit selling price excluding VAT of €100. Calculate the overall margin obtained.
- What would be the new margin rate if TechNow reduces the net selling price by 10% while keeping the purchase price unchanged? Use a net purchase price of €60.
- Estimate the total purchase cost excluding VAT of a batch of 200 gadgets if the unit purchase price excluding VAT is €60.
- Consider how an increase in quantity sold could offset a reduction in the margin rate on gadgets.
Proposed correction:
-
For a markup rate of 25%, use the formula:
PV HT = PA HT ÷ (1 – Mark rate)
PV excluding tax = €60 ÷ (1 – 0,25) = €80
The selling price excluding VAT should be €80 to obtain a mark-up rate of 25%. -
The overall margin is calculated by the formula:
Overall margin = Unit margin x Quantity sold
Unit margin = PV HT – PA HT = €100 – €60 = €40
Overall margin = €40 x 150 = €6
The overall margin obtained is €6. -
With a 10% reduction in the initial PV excluding tax of €100, the calculation of the new PV excluding tax is:
New PV excluding VAT = €100 x (1 – 0,10) = €90
Margin rate = ((€90 – €60) ÷ €60) x 100 = 50%
The new margin rate obtained is 50%.
-
The total purchase cost excluding VAT of a batch of 200 gadgets is calculated as follows:
Total purchase cost excluding VAT = Quantity x PA excluding VAT
Total purchase cost excluding VAT = 200 x €60 = €12
The total purchase cost excluding VAT is €12. -
An increase in the quantity sold could offset a reduction in the margin rate by increasing overall sales, thereby allowing the company to maintain or increase its profits.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | 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 |
| New margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Total purchase cost excluding VAT | Total purchase cost excluding VAT = Quantity x PA excluding VAT |
Application: FashionUniverse
States :
FashionUniverse, an online fashion clothing store, is looking to optimize its pricing strategies for its new collections. As a financial advisor, you need to look at certain ratios and give relevant recommendations.
Work to do :
- With a purchase price excluding tax of €25 per item of clothing, calculate the sale price excluding tax required to obtain a margin rate of 50%.
- Determine the total margin if 500 items are sold at a net selling price of €50 each.
- FashionUniverse is planning a promotion by applying a 15% discount on the retail price of €50 excluding VAT. How much will the discount be per item?
- What is the net sales figure for 500 items, after a 15% discount on each item originally sold at €50 net?
- Discuss the possible consequences of directly increasing the selling price on customer perception and demand.
Proposed correction:
-
Use the following formula for a desired margin rate of 50%:
PV excluding tax = PA excluding tax x (1 + Margin rate)
PV excluding tax = €25 x (1 + 0,50) = €37,50
The selling price excluding tax should be €37,50 to obtain a margin rate of 50%. -
The total margin is calculated as follows:
Unit margin = PV HT – PA HT = €50 – €25 = €25
Total Margin = Unit Margin x Quantity Sold
Total margin = €25 x 500 = €12
The total margin is €12. -
The amount of the discount per item is calculated by:
Discount = PV HT x Discount rate
Discount = €50 x 0,15 = €7,50
The discount amount per item is €7,50.
-
The net turnover after reduction is calculated as follows:
New PV excluding VAT = €50 – €7,50 = €42,50
Net sales turnover = Quantity x New PV excluding VAT
Turnover excluding tax = 500 x €42,50 = €21
The turnover excluding tax after reduction is €21. -
A direct increase in the selling price could reduce FashionUniverse's competitiveness, leading to a decrease in demand if customers perceive the prices to be too high relative to the perceived value.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding tax | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| Unit margin | Unit margin = PV excluding tax – PA excluding tax |
| Total margin | Total Margin = Unit Margin x Quantity Sold |
| Discount per item | Discount = PV HT x Discount rate |
| Turnover excluding tax after reduction | Net sales turnover = Quantity x New PV excluding VAT |
Application: BioEssence
States :
BioEssence, a company that provides natural beauty products, is striving to improve its profitability while maintaining its environmental commitment. It has asked you to provide an accurate analysis of its margins and costs for its flagship products.
Work to do :
- Calculate the margin rate if a beauty product is purchased at €10 excluding VAT and sold at €15 excluding VAT.
- If BioEssence wants to obtain a unit margin of €8, what should be the selling price excluding tax for a purchase cost of €12?
- BioEssence expects to sell 100 units of its best product. Determine the expected net sales if each unit is sold for €18 net.
- How much would BioEssence save by applying a 5% discount on its total purchasing costs of 500 units at €10 excluding VAT each?
- Evaluate how variation in purchasing costs could impact overall product pricing.
Proposed correction:
-
The margin rate is calculated by:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€15 – €10) ÷ €10) x 100 = 50%
The margin rate is 50%. -
To determine the desired selling price excluding tax with a unit margin of €8, use:
PV excluding tax = PA excluding tax + Unit margin
PV excluding VAT = €12 + €8 = €20
The selling price excluding tax must be €20 to achieve a unit margin of €8. -
The expected net turnover is calculated by:
Net sales turnover = Quantity x Net sales
Turnover excluding tax = 100 x €18 = €1
The expected turnover excluding tax is €1.
-
Saving on purchasing costs with a 5% discount:
Total Discount = Total Purchase Cost x Discount Rate
Total discount = (500 x €10) x 0,05 = €250
BioEssence would save €250 on this purchase. -
Changes in purchasing costs can directly impact profitability. An increase in costs may require an adjustment in selling prices to maintain margins, while a reduction in costs provides an opportunity for improved profits or increased competitiveness.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| Selling price excluding VAT with unit margin | PV excluding tax = PA excluding tax + Unit margin |
| Turnover excluding tax | Net sales turnover = Quantity x Net sales |
| Total cost savings with discount | Total Discount = Total Purchase Cost x Discount Rate |
Application: EcoWheels
States :
EcoWheels produces and sells electric bikes and has a strong focus on eco-responsibility. The company wants to review its inventory and production cost to optimize its profits and reduce its ecological footprint.
Work to do :
- If the production cost excluding tax of each electric bicycle is €370 and sold for €500 excluding tax, calculate the markup rate.
- How much does EcoWheels need to sell to reach an overall margin of €19, if the unit margin is calculated at €000 per bike?
- What would be the impact of a 15% decrease in the unit production cost on the unit margin, if the sales price remains constant at €500 excluding VAT?
- Evaluate the ideal stock in € for a consumption of 200 units per year with a unit cost of €370, if we wish to maintain a stock level for a period of 3 months of consumption.
- Deliberate on the financial implications that a reduction in the cost of production could have on EcoWheels' overall strategy.
Proposed correction:
-
The markup rate is determined as follows:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€500 – €370) ÷ €500) x 100 = 26%
The markup rate is 26%. -
To achieve an overall margin of €19, calculate the quantity to sell by:
Quantity = Overall Margin ÷ Unit Margin
Quantity = €19 ÷ €000 = 130 units (rounded)
EcoWheels needs to sell approximately 146 bikes to achieve the targeted overall margin. -
If the production cost decreases by 15%, the new unit margin becomes:
New unit cost = €370 x (1 – 0,15) = €314,50
New unit margin = €500 – €314,50 = €185,50
The new unit margin after cost reduction would be €185,50.
-
The ideal stock can be calculated as follows:
Ideal stock = Annual consumption ÷ Number of months x Unit cost
Ideal stock = (200 ÷ 12) x 3 x €370 = €18
The ideal stock in € for a period of 3 months is €18. -
Reducing production cost can increase unit margin and improve profits. It can also allow EcoWheels to reduce selling prices to remain competitive while potentially increasing sales volumes.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
| Quantity needed to reach margin | Quantity = Overall Margin ÷ Unit Margin |
| New impact on margin after cost reduction | New unit margin = PV HT – New unit cost |
| Ideal stock | Ideal stock = Annual consumption ÷ Number of months x Unit cost |
Application: NutriFit Food
States :
NutriFit Food is a company specializing in the production of healthy and balanced meals delivered to your home. It wants to increase its profitability by optimizing its costs and prices. You are responsible for examining certain financial aspects to improve the company's results.
Work to do :
- Calculate the margin rate achieved if NutriFit sells a meal for €10 excluding tax while the production cost excluding tax is €6.
- If the company wants to increase its unit margin by €2, what new selling price excluding tax should it set without changing the production cost?
- NutriFit Food plans to sell 5 meals per month. Calculate the expected monthly turnover excluding tax if each meal is sold for €000 excluding tax.
- What will be the total cost in € if half of the meals produced each month (2500 units) are sold at cost price to reduce production surpluses?
- Analyze the risks associated with an aggressive sales pricing strategy, such as a significant discount to capture more market share.
Proposed correction:
-
The margin rate achieved is:
Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100
Margin rate = ((€10 – €6) ÷ €6) x 100 = 66,67%
The margin rate achieved is 66,67%. -
To increase the unit margin by €2:
New unit margin = Initial unit margin + €2
New unit margin = €4 + €2 = €6
New PV HT = PA HT + New unit margin
New PV excluding tax = €6 + €6 = €12
The new required selling price excluding VAT is €12. -
The expected monthly net turnover is calculated as follows:
Net sales turnover = Quantity x Net sales
Turnover excluding tax = 5 x €000 = €12
The expected monthly turnover excluding tax is €60.
-
Total cost if half of the meals are sold at cost price:
Total cost = Number of meals x Unit production cost
Total cost = 2 x 500 € = 6 €
The total cost is €15 for 000 meals sold at cost price. -
An aggressive pricing strategy to increase market share can reduce profit margins and hurt short-term profits. It can also create expectations of low prices, making it more difficult to return to normal price levels.
Formulas Used:
| Title | Formulas |
|---|---|
| Margin rate | Margin rate = ((PV excluding tax – PA excluding tax) ÷ PA excluding tax) x 100 |
| New selling price excluding VAT with margin | New PV HT = PA HT + New unit margin |
| Expected monthly turnover excluding tax | Net sales turnover = Quantity x Net sales |
| Total cost at cost price | Total cost = Number of meals x Unit production cost |
Application: GreenElectro
States :
GreenElectro manufactures environmentally friendly batteries for electronic devices. The company wants to analyze its price chain to optimize its competitiveness and reduce environmental costs. The management wants your opinion on various strategic options.
Work to do :
- Knowing that the purchase price excluding VAT of a battery is €50 and that the desired mark-up rate is 40%, what should the sale price excluding VAT be?
- If GreenElectro sells 200 batteries and makes a total margin of €4, find the unit margin.
- Consider the economic impact of a 20% reduction on the initially calculated net selling price of €80 without changing the net purchase cost.
- Calculate the net sales figure if the company sells 400 batteries at the new net sales price after the discount.
- Examine the possible effects of fluctuating raw material conversion rates on GreenElectro's margins.
Proposed correction:
-
To determine the desired selling price excluding VAT with a markup rate of 40%, use:
PV HT = PA HT ÷ (1 – Mark rate)
PV excluding tax = €50 ÷ (1 – 0,40) = €83,33
The selling price excluding VAT should be €83,33. -
The unit margin is calculated as follows:
Unit Margin = Total Margin ÷ Quantity
Unit margin = €4 ÷ 000 = €200
The unit margin is €20. -
With a 20% discount:
New PV excluding VAT = €80 x (1 – 0,20) = €64
The economic impact will be a decrease in revenue, however it could potentially increase sales.
-
Turnover excluding tax with reduction:
Net sales turnover = Quantity x New PV excluding VAT
Turnover excluding tax = 400 x €64 = €25
The turnover excluding tax after the reduction is €25. -
Fluctuations in conversion rates may impact supply costs; GreenElectro will have to adjust its margins and potentially review its prices to compensate for these variations, while ensuring that it remains competitive.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding VAT with markup rate | PV HT = PA HT ÷ (1 – Mark rate) |
| Unit margin | Unit Margin = Total Margin ÷ Quantity |
| Turnover excluding tax with reduction | Net sales turnover = Quantity x New PV excluding VAT |
Application: Arboria
States :
Arboria, an eco-responsible wooden furniture production company, wants to strengthen its competitiveness while maintaining its superior quality. You need to analyze certain commercial and financial aspects to guide their strategies.
Work to do :
- If the production cost excluding tax of a wooden table is €150, calculate the selling price excluding tax with a margin rate of 35%.
- Calculate the overall margin if Arboria sells 50 tables at a selling price excluding tax of €200 each.
- What could the HR turnover be if a 10% discount is applied to the current selling price excluding VAT of €200 per table, and 60 tables are sold?
- Determine the break-even point in units if the monthly fixed cost is €3 and the unit margin per table is €000.
- Discuss the possible impact of choosing more expensive but more durable materials on Arboria's market positioning.
Proposed correction:
-
To determine the selling price excluding tax from a margin rate of 35%, use:
PV excluding tax = PA excluding tax x (1 + Margin rate)
PV excluding tax = €150 x (1 + 0,35) = €202,50
The selling price excluding VAT should be €202,50. -
The overall margin is calculated as follows:
Unit margin = PV HT – PA HT = €200 – €150 = €50
Overall margin = Unit margin x Quantity sold
Overall margin = €50 x 50 = €2
The overall margin is €2. -
For turnover excluding tax with discount:
Discount = €200 x 0,10 = €20
New PV excluding VAT = €200 – €20 = €180
HR turnover = Quantity x New PV HT
HR turnover = 60 x 180 € = 10 €
HR turnover after discounts is €10.
-
For the break-even point:
Break-even point in units = Fixed cost ÷ Unit margin
Break-even point in units = €3 ÷ €000 = 70 (rounded to 42,86 units)
Arboria needs to sell 43 tables to break even. -
Using more expensive but more durable materials can improve the perception of quality and justify a premium positioning. However, the cost structure and pricing strategy will need to be re-evaluated to preserve margins.
Formulas Used:
| Title | Formulas |
|---|---|
| Selling price excluding VAT with margin | PV excluding tax = PA excluding tax x (1 + Margin rate) |
| Unit margin | Unit margin = PV excluding tax – PA excluding tax |
| Overall margin | Overall margin = Unit margin x Quantity sold |
| HR turnover with discount | HR turnover = Quantity x New PV HT |
| Break-even point in units | Break-even point in units = Fixed cost ÷ Unit margin |
Application: AquaTech
States :
AquaTech, a specialist in the production of innovative water purification systems, is considering revising its commercial and financial policies to better satisfy its customers while increasing its profitability.
Work to do :
- Calculate the markup rate if AquaTech sells a purification system for €400 excluding VAT, for a production cost excluding VAT of €240.
- AquaTech plans to sell 120 systems per month. Estimate the overall monthly margin if each sale generates a unit margin of €100.
- What is the necessary selling price excluding VAT if AquaTech wishes to offer a 25% discount while maintaining a unit margin of €70? The production cost remains unchanged at €240.
- Analyze the potential financial impact of a 15% overall increase in production costs across all systems sold.
- Suggest strategies that AquaTech could adopt to mitigate the effects of these increased costs while remaining competitive.
Proposed correction:
-
The markup rate is calculated with:
Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100
Brand rate = ((€400 – €240) ÷ €400) x 100 = 40%
The markup rate is 40%. -
The monthly overall margin is determined by:
Overall Margin = Unit Margin x Monthly Quantity
Overall margin = €100 x 120 = €12
The overall monthly margin is €12. -
If a 25% discount is offered while maintaining a unit margin of €70:
Initial PV HT before discount = PA HT + Unit margin
Initial PV excluding tax = €240 + €70 = €310
New PV HT without discount = Initial PV HT ÷ (1 – Discount)
New PV excluding VAT = €310 ÷ (1 – 0,25) = €413,33
The new PV excluding tax required is €413,33.
-
A 15% increase in production costs would result in a new unit cost of:
New production cost = PA HT x (1 + 0,15)
New production cost = €240 x 1,15 = €276
This would reduce the unit margin if the selling price remains unchanged, potentially requiring an adjustment in selling prices. -
AquaTech could explore diversifying its suppliers to reduce reliance on a single supply, automate parts of production to control costs, or adjust its prices thoughtfully to account for customers' sensitivity to price fluctuations.
Formulas Used:
| Title | Formulas |
|---|---|
| Brand taxes | Brand rate = ((PV excluding tax – PA excluding tax) ÷ PV excluding tax) x 100 |
| Monthly overall margin | Overall Margin = Unit Margin x Monthly Quantity |
| New selling price excluding VAT after discount | New PV HT = Initial PV HT ÷ (1 – Discount) |
| New production cost | New production cost = PA HT x (1 + Increase) |