Fix & Variable Costs if you do not know the industry well - Ask?

Hi Anonymous,

an interviewer would appreciate if you apply some common sense to the question. You can by all means state that you are unfamiliar with this particular industry, but that you extrapolate from XYZ industry that you know well. You can then state something like "I would like to quickly run through these cost buckets to double check my assumptions regarding fixed and variable costs". This leaves a much stronger impression than you just asking the interviewer to solve the problem for you.

Please note: even before doing all of this, it is crucial that you clearly and crisply explain why you want to categorize the cost in this way. This is how you demonstrate a solid hypothesis-driven approach towards solving the case (rather than exploratively diving into generic analyses)!

Cheers, Sidi

Hi Anonymous,

it’s totally ok to ask, but as mentioned in the other answers, you should ask in the right way. This means that:

1. You should explain the rational for looking into costs
2. You should present your initial structure (eg fix and variable costs) and anticipate you are not familiar with the industry but could lay an hypothesis on the different costs in each area
3. You should present your hypothesis in each area

Once done this it is fine to double check with the interviewer if your hypothesis was correct.

Best,

Francesco

I agree with other answers and recommend that you should at first try to use common sense and ask for validation to ensure you are not going down the wrong path. A good way to do that is using a phrasing like the following "I am not really familiar with this industry, however I believe the major cost buckets would be x,y,z. Is my understanding correctly or am I missing something?"

As stated, just asking what major cost components are would reflect poorly as dividing costs just in fixed and variable which would seem too superficial/"frameworky".

Hope it helps,

Andrea

Hi,

You don't necessarily have to lay out the costs in advance. Moreover, in most of the cases, it will be time-consuming and irrelevant. Usually, you split the costs into fixed and variable. Then I see the three options:

1. If you know that the costs have changed, you ask whether its FC or VC that have changed. Then you drill down to one of them, asking what are the specific costs that have changed
2. If you are asked by the interviewer what are the costs, you use your common sense to map them.
3. If you need to structure the costs for some reason, you can ask directly - "Do we have any data about the cost structure?"

Best