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Why is purchase price not included in total revenue?

We calculate the company's total revenue as 1B euros. If the sample product has a purchase price of 30 euros out of a sale price of 60 euros, does that not mean that overall, 500M euros of the company's revenue goes towards purchasing the products for sale? And if so, then the speculated overhead costs of 920M would surpass the remaining 500M of revenue that needs to cover overheads and profit. 

In general, do market charts like Exhibit 1 exclude purchase price? This would be odd, given that different companies have different purchase prices, and that is part of their internal operations

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on Oct 11, 2023
Ex-BCG Principal | 8+ years consulting experience in SEA | BCG top interviewer & top performer

Hi,

I took a quick look at the case. Indeed it is quite confusing and probably that's why its not a high rated case. If 8% is the overall net margin for our client, than that margin has to include total variable costs as well (which t case doesn't in this in the first average margin calculation).

In general, market charts like Exhibit 1 (the variwide graph) will not include purchase price:

  1. The charts are normally meant to express revenue / sales for which you do not need purchase price 
  2. In reality, purchase price would be confidential as well so hard to get this

All the best!

on Oct 16, 2023
Ok, thank you Benjamin!
Ian
Coach
on Oct 12, 2023
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

Benjamin is exactly right! I've aim for cases that are 4-star and above as it's a good indicator of the quality of the case!

on Nov 10, 2023
PrepLounge

Thank you for your question. We have reviewed and adjusted the case. We hope it is more clear now, and let us know if you have further feedback. Your PrepLounge team 

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