Why are gross profit margins calculated using last year's revenues (590 EUR) and not 501.5 EUR?

I don't quite get why the sale planning is done and then it's still using the former revenues figure. Many thanks for the answer.

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Coach

on Nov 13, 2020

Bain Manager and Ex- Accenture | >5 years of coaching experience | Experienced Interviewer | Personalised coaching

Even if you use the 501.5 EUR number, the answer remains the same. In this case, the % share of sales would need to be updated now considering <5 EUR category doesnt exist anymore.

For example, for category 6-10 EUR, initially it contributed 20% of sales, but now it contributes 23.52% of sales (after removing <5 EUR category). If you multiply 501.5 EUR * 23.52%, you get 118 EUR for 6-10 EUR category. Gross margin for the category doesnt change, as it none of the factors impacting gross margin changed. So assuming the same gross margin of 15% for 6-10EUR category, we get 15%*118 EUR = 17.7 EUR.

I hope this helps. Please do let me know if any further questions.