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gross profit margin planning

Hello, I have a question:

the first measurement is to remove products from lower 5 € category, which makes up 15% of sales volume in year 3. After removing this 15%, we donnot know, how this 15% were compensated by products from the other 4 categories ( the exact percentage change is unknown). 

In the calculation of the gross profit margin planning, it is calculated based on the percentage distribution from year 3. However, to get 100% in total, don't we need the exact changed percentage of the rest 4 categories at first, then calculate the gross profit margin? 

We removed the category lower 5€. So the situation changed. I do not understand the logic of the gross profit margin calculation based on data from year 3. 15%+10%+30%+40%=85%, not 100%.  This is a problem. 

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Top answer
LK
Coach
on Jan 10, 2024
50% off

Hi Yiqing,

The case uses the same distribution percentages because it is based on the same total sales number (EUR 590m) that still includes the sales portion of the <5 EUR category. 

You could use a new percentage distribution, but you would have to adjust the sales to exclude the <5 EUR category (i.e. EUR 510.5M = 590 - 88.5)

I added a table below with the detailed view for your own reference, if helpful. 

on Jan 15, 2024
#1 Rated McKinsey Coach | Top MBB Coach | Verifiable success rates
Ian
Coach
on Jan 10, 2024
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

Lucas gave a great answer already!

Highly recommend you keep practicing, especially using rocketblocks. Remember also here that breaking down the problem piece by piece is key to solving it!

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