SELLING UNIT RETAIL CALCULATION FROM UNIT COST

Though it is simple, it seemed pretty confusing at first to me. It took a while for me to understand the method to calculate retail price from cost price, in fact when I did Google for the answer I found a lot of wrong answers or formulae online and sadly I did not find the answer I was looking for. Then I used the oracle retail calculation engine to understand how the same is being calculated.

Before going for the complete formula lets understand it step by step. I will explain you the way I understood it, hoping it will provide better clarity on the calculation :

Lets assume :

V - Vat rate 

C - Unit Cost

R - Selling Unit Retail 

NR - Net Retail i.e. selling retail before adding vat rate

M - Net Sales Margin 

Every merchandiser will set a fixed Margin percentage for each category which he would like to attain through sales. For example a buyer has procured a merchandise , lets say Disney soft toy for 1500 Rs. at landed cost. Now the merchandiser while doing the budgeting was to attain a margin of 35% , so he will use the below formula to calculate the Net Retail ;

C = NR -  (NR x M/100)

C = NR{1-(M/100)}

C / {1-(M/100)} = NR    

                      NR = C / {1-(M/100)}           --- this is the formula to calculate Net Retail ---

NR = 1500 / {1-(25/100)} 

      = 1500 / {1-0.25}

      = 1500 / 0.75

      = 2000 

So from the above , we can understand that to the merchandiser will set the Net Retail at 2000 for him to achieve a margin of 25% we can verify the same using the below formula 

             M % = { ( NR - C ) / NR } x 100    --- this is the formula to calculate Net sales Margin ---

M = { (2000 - 1500 ) / 2000 } * 100

    = { 500 / 2000 } * 100

    = 0.25 * 100

    = 25 %

 Now that we have the Unit Cost, Net Margin, Net Retail and Vat Rate we can easily calculate the 

selling unit retail 

R = NR + (NR * V/100) 

   = NR x ( 1+V/100)  

   = 2000 x (1+0.16)

   = 2000 x 1.16

   = 2320 

                        R = NR x ( 1+V/100)           --- this is the formula to calculate Selling Unit Retail ---

The consolidated formula to arrive at the selling unit retail from cost will be below 

                      R = {C x ( 1+V/100)} / (1-M/100)   

   

R = {1500 x (1+16/100)} / (1-25/100)

   = {1500 x (1 + 0.16)} / (1 - 0.25)

   = ( 1500 x 1.16) / 0.75

   = 2320 Rs.