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JIE

am 4. Feb. 2021

Global

Frage zu

Fixed costs

May I please ask how can we assume the fix cost is $300K? fixed cost per unit is $3, if we change the volume, the fixed costs= $3 * unit sold, is it correct?

thank you

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Ian

Coach

am 4. Feb. 2021

Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi JIE,

This case is a bit misleading. It really should be contribution margin. That is, at x rate of production, what is the marginal FC per unit sold.

Of course, this changes as you change # of units.

Luca

Coach

am 4. Feb. 2021

BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello JIE,

You are right, the text of the case is quite confusing on that.
I think that the "fixed cost/Unit=3$" is just the incidence of the fixed costs per unit sold (total fixed costs/total volume). By definition fixed costs can not be strictly correlated with volumes. For that reason, once that you calculate the fixed costs as 3$/unit*100,000units=300k$, you can assume that they do not vary for the rest of the case.

Is that clear?

Best,
Luca

3 Kommentare

JIE

am 4. Feb. 2021

thank you for your quick response, Luca. in this case, I understand. However regarding the market share changes, I'd like to under stand why we make the profit equals to 100,000? I calculated the profit margin would be 1/3.

JIE

am 4. Feb. 2021

thank you

Luca

Coach

am 4. Feb. 2021

BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Because in this case the market share is calculated considering the volumes of units sold

Clara

Coach

am 5. Feb. 2021

McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Agree, misleading wording.

Important concepts here:

FIXED COSTS. they don´t vary with the output
FIXED COST/UNIT: this refers to the 3 USD in the case. These are the total fixed costs/total units, hence, the allocation of total fixed cost per each unit. The more you produce, the smaller this number will be

Hope it helps!

Cheers,

Clara