Basic maths question from a newbie

grumbleweed · 23-02-2021 2:46pm #1

Hi folks

Im new too all of this and just looking for a basic maths lesson if thats OK. I am manufacturing and importing a product from China that i have developed and trying to figure out my profit on each unit after i have paid manufacturing and Import costs.

The manufacturing cost is €20 per unit, Import tax is @ 4.5 % bringing my landed unit cost to €20.90... lets say €21 for arguments sake

My MRSP is €70.00 ... am i correct in thinking that VAT is at 23% !!

€70.00 - €21.00 = €49.00

€49.00 - 23% VAT = €37.73

Is €37.73 the correct unit profit figure or am i way off with my calculations, Is my working out method correct. I may have missed a crucial part of the equation somewhere .. this is a non electronic product and just completely fabric, Im not sure whether that is relevant.

Thank you

Thoie · 23-02-2021 2:54pm

I'd start with your ex-VAT price is €56.91 (70 divided by 1.23)

So your profit is €56.91-€21 = €35.91 per unit

Of the €70, with VAT at 23%, you'll always have to give the tax man €13.09, so I'd exclude that before looking at profit.

Masala · 23-02-2021 2:56pm

grumbleweed wrote: »

Hi folks

Im new too all of this and just looking for a basic maths lesson if thats OK. I am manufacturing and importing a product from China that i have developed and trying to figure out my profit on each unit after i have paid manufacturing and Import costs.

The manufacturing cost is €20 per unit, Import tax is @ 4.5 % bringing my landed unit cost to €20.90... lets say €21 for arguments sake

My MRSP is €70.00 ... am i correct in thinking that VAT is at 23% !!

€70.00 - €21.00 = €49.00

€49.00 - 23% VAT = €37.73

Is €37.73 the correct unit profit figure or am i way off with my calculations, Is my working out method correct. I may have missed a crucial part of the equation somewhere .. this is a non electronic product and just completely fabric, Im not sure whether that is relevant.

Thank you

I would calculate differently.....

€70 includes VAT at 23%. So 70/1.23 = a Net of €56.91 after giving €13.09 to VAT Man

So €56.91 less your costs of €21.00 = Gross Profit of €35.91

Thats a Margin of 63% (35.91/56.91)...

Thoie · 23-02-2021 3:00pm

In addition:

€49.00 - 23% VAT = €37.73

What you've done there is not the right way to calculate ex-VAT prices

You've said 23% of 49 = 11.27

49 - 11.27 = 37.73

You need to think of the 49 (or 70, which I think it should be) as being 123%, and to find the ex-VAT price, you're looking for "what is 100%". That's why you divide the number by 1.23 to get the ex-VAT price.

An example to help for future:
If the ex-VAT price of something is 100, then the inc-VAT price will be 123.

If you multiply 123 by 23% you get 28.29, and you know that's not right.

grumbleweed · 23-02-2021 3:02pm

Thanks folks , I appreciate all of that ... I might be back with more questions yet

JMR · 23-02-2021 3:18pm

Masala wrote: »

I would calculate differently.....

€70 includes VAT at 23%. So 70/1.23 = a Net of €56.91 after giving €13.09 to VAT Man

So €56.91 less your costs of €21.00 = Gross Profit of €35.91

Thats a Margin of 63% (35.91/56.91)...

The above is the correct method for calculating your gross margin.
Now that your initial maths question is answered, I would caution you to include ALL your costs in your calculations, not just the manufacture and import costs.
Each cost added eats into your GM.
Think - storage, shipping, insurance, marketing, website, etc....

andrewfaulk · 23-02-2021 6:24pm

grumbleweed wrote: »

Hi folks

Im new too all of this and just looking for a basic maths lesson if thats OK. I am manufacturing and importing a product from China that i have developed and trying to figure out my profit on each unit after i have paid manufacturing and Import costs.

The manufacturing cost is €20 per unit, Import tax is @ 4.5 % bringing my landed unit cost to €20.90... lets say €21 for arguments sake

My MRSP is €70.00 ... am i correct in thinking that VAT is at 23% !!

€70.00 - €21.00 = €49.00

€49.00 - 23% VAT = €37.73

Is €37.73 the correct unit profit figure or am i way off with my calculations, Is my working out method correct. I may have missed a crucial part of the equation somewhere .. this is a non electronic product and just completely fabric, Im not sure whether that is relevant.

Thank you

4.5% would be duty rather than VAT.. Import VAT is payable at 23% but can be deferred..

Also, you have not allowed for a shipping cost.. Duty would be payable on the landed value(cost of manufacturing plus shipping)

grumbleweed · 23-02-2021 6:37pm

One last thing folks ...

How would these figures work If Im wholesaling to a reseller with a 40% discount ... Still with an MRSP of €70 ..

€70 - €28 (40% disc) = €42 .. is my VAT paid on the €42 ?

€42 / 1.23 = €34.14 - €21.00 = €13.14 .. Would those calculations be correct.

Thanks again.

ChippingSodbury · 23-02-2021 6:43pm

andrewfaulk wrote: »

4.5% would be duty rather than VAT.. Import VAT is payable at 23% but can be deferred..

Also, you have not allowed for a shipping cost.. Duty would be payable on the landed value(cost of manufacturing plus shipping + insurance)

I'm fairly sure the Duty is payable on CIF (Cost + Insurance + Freight)
Duty is dead money i.e. you can't claim it back.
If you're not registered for VAT, you can't claim that back either but it's easy to register if you not already registered.
Make sure your TARIC Code is correct (check here: https://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en) and that your Customs Agent selects the correct Code when the Import paperwork is being submitted. Whether or not you use a Custom's Agent, YOU are responsible for the Customs declaration afterwards.
As far as I know, if you simply resell/ distribute the product to UK, its import to UK will also be subject to import duty because the FTA between EU & UK ONLY covers goods whose origin is EU or UK. Proof of Country of Origin paperwork isn't required until 01-Jan-2022 but you still have to abide by the Country of Origin rule

grumbleweed · 23-02-2021 6:47pm

andrewfaulk wrote: »

4.5% would be duty rather than VAT.. Import VAT is payable at 23% but can be deferred..

Also, you have not allowed for a shipping cost.. Duty would be payable on the landed value(cost of manufacturing plus shipping)

The €21.00 in the original post is the manufacturing and shipping cost plus 4.5% duty equating to a €21.00 landed rate
Is the 23% VAT rate you are refereeing to that can be deferred the same 23% we have allowed in the calculations.

ChippingSodbury · 23-02-2021 6:51pm

grumbleweed wrote: »

One last thing folks ...

How would these figures work If Im wholesaling to a reseller with a 40% discount ... Still with an MRSP of €70 ..

€70 - €28 (40% disc) = €42 .. is my VAT paid on the €42 ?

€42 / 1.23 = €34.14 - €21.00 = €13.14 .. Would those calculations be correct.

Thanks again.

You pay your VAT on whatever your sale price is. If you decide to sell it to your wholesaler at €34.14, your VAT is €34.14 * 23% (from 01-Mar) = €7.85

Forget about VAT for margin etc. VAT is only a "loan" from the Revenue!!

PickYourName · 01-03-2021 4:41pm

JMR wrote: »

Now that your initial maths question is answered, I would caution you to include ALL your costs in your calculations, not just the manufacture and import costs.
Each cost added eats into your GM.
Think - storage, shipping, insurance, marketing, website, etc....

You're mixing things that are more correctly classed as business expenses in with cost-of-goods-sold. Things such as marketing, website, (general) insurance etc. are not part of of calculating your gross margin.

Gross margin: net sale income less cost of goods sold

Cost of goods sold include manufacturing, shipping, packaging and everything associated with the direct costs of getting product to the customer.

Out of your gross profit, you then have to pay for business expenses: rent, rates, utilities, insurance, marketing etc. etc.

What's left is your net profit.

Basic maths question from a newbie

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