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Brainstorming: What are important costs that should be known?

Anonymous A asked on Jan 29, 2019

Hey all,

think it is a good idea to gather the most important costs, which often have to be brainstormed during case interviews - I know it is very case specific, but it certainly helps to have the most important ones in mind:

Fixed Costs (often SGAs + Depreciation):

- Labour costs (assumption: cannot be laid off immediately)

- Overhead/Admin costs

- Depreciation/Amoritzation

- Utilities (electricity etc.)

- Insurance costs

- Rental costs

Variable costs (COGS):

- Material costs

- Direct manufacturing costs/maintenance

- Packaging costs

- Marketing fees

...

Which others do you think are important?

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Sidi
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replied on Jan 30, 2019
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 90+ candidates secure MBB offers
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Hi!

It really depends on the industry and even more on the business model! The above list seems to be quite centered around producing and selling a product. If you are considering service businesses, the cost buckets might dramatically differ! Your main cost might suddenly become:

  • Commissions & Royalties
  • Licenses
  • Travel & expenses

So you really have to look at this in a SPECIFIC context. It is counterproductive to try and come up with a general list, since this will narrow your view! Instead, you should look at the "value chain" of the respective business and identify the cost pillars in every step.

Cheers, Sidi

Vlad replied on Jan 30, 2019
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Hi,

I would not put all the costs in these buckets since they depend on the industry. However a few comments:

Marketing costs are usually fixed (unless it's the discount or direct user acquisition costs)

Also, I would add distribution.

Best

Omotola replied on Jan 29, 2019

we have the following cost:

* Fixed cost

* Variable cost

* Average variable cost

* Total variable cost

* Total cost

* Cost of production.

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