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Managing the Margin Rule Master

Owned by Aparajita Basu Roy
Last updated: Jul 11, 2022 by Subhasree Banerjee (Unlicensed)

The margin is the difference in value of the purchase and the sale price; a positive margin means profit for the seller while a negative margin is an indicator of loss. The Margin Rule is basically a formula to be applied on the item cost for maintaining a stable profit against an item purchased from a particular supplier.

Once the margins are discussed and frozen, the users want the decided margins to be fed into the software after which the software will automatically ensure enforcement of the rules on every trade with the vendor. These set of margins are termed as margin rules. Margin rules can be set at a maximum of three levels 1) Vendor and 2) Article 3) Site. That is, the retailer can say that I want to enforce x % margin on purchase of every y Article from z Vendor.

Suppose an item, A001, is bought from Supplier S1 and the seller wants a profit of 10% on it. So the seller sets a margin rule in such a way that at a cost of  100 he'll be selling at 110. But if the cost price of the item increases to 110; his sale price must increase to 121 for his profit margin to be maintained.

The Margin Rule Master has multiple application operations - Add, Edit and Export to Excel.

  Define or Add Margin Rule

The Add button in the Margin Rule Master grid view allows the inclusion of new Margin Rules as and when required. On clicking the button, the Add Margin Rule window opens up to include all relevant details of a Margin Rule. The new record can then be saved and reflected in the master.

Prerequisites

  1. The user's role must have the Add application operation enabled for Procurement > Setup > Vendors > Margin Rule in Admin > Security > User > Roles .

Step-by-step guide

Following steps are used:

  1. Go to Procurement > Setup > Vendors > Margin Rule.

  2. Click on the Add button to open the Add Margin Rule window.



The following table shows the Field Names and provides a description of their functionality.

Field NameField Description

Rule Information

 

IMPORTANT

In the same Margin Rule, Calculation Method cannot be different for Cost to MRP and Cost to WSP. In both the cases, it must be marked either as Markup or Markdown.

In the same Margin Rule, Alert when.. condition cannot be different for Cost to MRP and Cost to WSP. The user can choose only one alert condition for one rule.


Rule NameThis is a mandatory field where the name of the Margin Rule to be created is given. Duplicate name of Margin Rule is not allowed.
DescriptionThis is an optional field to note any necessary description about the Margin Rule.

Applicable From 

From

The date (calendar) field has been provided to capture the dates from which the margin rule will be applicable.

IMPORTANT

  • It is a mandatory field.

  • By default system date is displayed, if required User can change it.

  • Date From must be within the accounting year of the login date.

  • Date From of the last row cannot be less than or equal to previous row's Date From.

Till

It is a display field and does not contain any value for the last Date From defined.

When new Date From is defined, then the previous Till Date is updated with the previous date of the new Date From value.

Rule Interpretation
Effective DateIt is a display field showing the value of Date From of the currently selected Date Range.
  • Selection or navigation in date grid will refresh the rule defined in the block.
RemarksUser can provide any required remarks.

Cost to MRP

 

Calculation Method 

This is the field which determines the process by which the margin will be calculated on the cost price. The two(2) radio options for this field are -

  • Markup - In Markup the profit is calculated by adding a percentage of the cost to the cost itself, to get the Selling Price. negotiate SP
    For example, if the cost of an item is  100 and there is a 5% margin on markup basis for the item; then the selling price of the item would be (100 + 5% of 100) =  (100 + 5) = 105
     
  • Markdown - In case of Markdown the cost is derived by back calculating and deducting from the selling price, to get the Purchase Price. negotiate CP For example, if the selling price of an item is 100 and there is a 5% margin on markdown basis for the item; then the cost price of the item would be (100 - 5% of 100) =  (100 - 5) = 95.
Cost will be taken as

The cost of an item may be its basic price or the price plus any charges it accrues before it reaches the buyer. So in considering the margin rule, it becomes important to decide which price will be treated as the actual cost price -

  • Basic Price = Item Purchase Rate

     
  • Effective Price = Item Purchase Rate + Charges or taxes if any levied

    (if Basic Price is 50 and the transport charges and taxes 50; then the Effective Price is 100)
Consider Tax in Margin

Margin can be calculated either before application of taxes or after considering all taxes.

There two(2) radio options:

Gross of VAT - When the margin is calculated before VAT calculations.

Net VAT - When the margin is calculated after VAT calculations.

MRP will be taken as

The MRP can be calculated as RSP or MRP. If Calculation Method is set to Markup then option for MRP will be taken as will get disabled and the option MRP will be selected automatically.

There two(2) radio options:

RSP - The Retail Sale Price is the price decided by the Retailer / Seller. It is decided after considering the profit margin, Default Value.

MRP - The Maximum Retail Price of an item is the price decided by the producer of that item and cannot be changed by any other entity in the selling chain.

Minimum Margin 

The margin to be maintained for a consistent profit can be based on either percentage or absolute value.

There two(2) radio options with user defined text fields:

On Percentage <user defined factor> % - The margin is calculated as a percentage of the Basic or Effective price, Default Value.

On Absolute Value <user defined value> - The margin is calculated as a definite user specified value

Rule Status

The margin rule may be activated immediately or later by modifying the rule status.

There two(2) radio options:

Active - Applicable from the effective date.

Inactive - Currently not applicable; Default Value

(Checkbox)

The user needs an alert when his profit margin goes down or even when it goes up.

If checked it will provide an alert whether the margin is either more or less than the specified value.

Rule Interpretation

This section shows how the margin rule being created is to be interpreted when applied.

For example, a margin rule may be set in the following way -

While making any 'Stock In' type of entry:

If user does not maintain <10%><Markup> Margin Between <Effective Cost> and <MRP>

Then the system will <warn / block / ignore> (any one option) based on the user profile.

Margin will be calculated as <Gross of VAT>.

This rule is <ACTIVE>

The above rule actually means that on an item of Effective Cost of 100, a markup margin of 10% i.e. 10 will be added to get the MRP and if this margin is not maintained; then the system will either ignore or warn or stop the transaction for that user depending on the user's profile. The margin will be calculated before application of VAT and the rule is applicable from the given effective date.

Rule Calculation Formula

This gives the formula for calculating the margin based on the rule being set.

Above example may be calculated from the rule in the following way:

If <Effective Cost + 10% of Effective Cost > MRP> then the system will < Warn / Block / Ignore> the entry based on the user profile.


Cost to WSP

 

Calculation Method 

This is the field which determines the process by which the margin will be calculated on the cost price. The two(2) radio options for this field are -

  • Markup - In Markup the profit is calculated by adding a percentage of the cost to the cost, to get a value.
    For example, if the cost of an item is  100 and there is a 5% markup on the item; then the selling price of the item would be (100 + 5% of 100) =  (100 + 5) = 105
     
  • Markdown - In case of Markdown the cost is derived by back calculating and deducting from the selling price, to get a value. For example, if the selling price of an item is 105 and there is a 5% markdown on the item; then the cost price of the item would be (105 - 5% of 105) =  (105 - 5.25) = 99.75.
Cost will be taken as

The cost of an item may be its basic price or the price plus any charges it accrues before it reaches the buyer. So in considering the margin rule, it becomes important to decide which price will be treated as the actual cost price -

  • Basic Price = Cost of Production + Producers' Profit 
    (if cost of production of an item is 10 and the producers' profit is 40; then the basic price50)

     
  • Effective Price = Basic Price + Transport Charges and taxes 
    (if Basic Price is 50 and the transport charges and taxes 50; then the effective price is 100)
Consider Tax in Margin

Margin can be calculated either before application of taxes or after considering all taxes.

There two(2) radio options:

Gross of VAT - When the margin is calculated before VAT calculations.

Net VAT - When the margin is calculated after VAT calculations.

Minimum margin to be maintained

The margin to be maintained for a consistent profit can be based on either percentage or absolute value.

There two(2) radio options with user defined text fields:

On Percentage <user defined factor> % - The margin is calculated as a percentage of the Basic or Effective price, Default Value.

On Absolute Value <user defined value> - The margin is calculated as a definite user specified currency value.

Rule Status

The margin rule may be immediately applicable or be activated later.

There two(2) radio options:

Active - Applicable from the effective date.

Inactive - Currently not applicable; Default Value

(Checkbox)

The user needs an alert when his profit margin goes down or even when it goes up.

If checked it will provide an alert whether the margin is either more or less than the specified value.

Rule Interpretation

This section shows how the margin rule being established is to be interpreted when applied.

For example, a margin rule may be set in the following way -

While making any 'Stock In' type of entry:

If user does not maintain <10%><Markup> Margin Between <Effective Cost> and <WSP>

Then the system will <warn / block / ignore> (any one option) based on the user profile.

Margin will be calculated as <Gross of VAT>.

This rule is <ACTIVE>

The above rule actually means that on an item of Effective Cost of 100, a markup margin of 10% i.e. 10 will be added to get the WSP and if this margin is not maintained; then the system will either ignore or warn or stop the transaction for that user depending on the user's profile. The margin will be calculated before application of VAT and the rule is applicable from the given effective date.

Rule Calculation Formula

This gives the formula for calculating the margin based on the rule being set.

For example, a margin may be calculated from the rule in the following way:

If <Effective Cost + 10% of Effective Cost > WSP> then the system will < Warn / Block / Ignore> the entry based on the user profile.

The above formula actually means that on an item of Effective Cost of 100, a markup margin of 10% i.e. 10 will be added to get the WSP and if this selling price is greater than the WSP; then the system will either ignore or warn or stop the transaction for that user depending on the user's profile.

 

SaveThis button will save the Margin Rule.
CloseThis button will close the Add Rule window.


 Edit Margin Rule

The records in the Margin Rule Master may need to be modified to include more information about the margins or modify information already present in the system.

Pre-requisites

  1. The user's role must have the Modify application operation enabled for Procurement > Setup > Vendors > Margin Rule in Admin > Security > User > Roles .

Step-by-step guide

Following steps are used:

  1. Go to Procurement > Setup > Vendors > Margin Rule.

  2. Select a Margin Rule from the list.

  3. Click on the Edit option in the Action menu to open the Edit Rule window. Alternatively, double click on the selected Vendor to open the Edit Rule window.

The Margin Rule can be edited provided the following conditions are fulfilled:

  • Modification of rules definition for previous dates is not allowed.

  • Only margin rule definition of last recorded Date From is modifiable.

  • Date range specified must be within connected accounting year.

  • If modified Date From specified is less than equal to last entered Date From already provided then, then modification is not allowed.

  • If modified Date From is greater than Date To already provided for the same record, then modification is not allowed.

  • For past effective date, both date and rule cannot be modified.