gross profit margin planning

Question

Hello, I have a question:

the first measurement is to remove products from lower 5 € category, which makes up 15% of sales volume in year 3. After removing this 15%, we donnot know, how this 15% were compensated by products from the other 4 categories ( the exact percentage change is unknown).

In the calculation of the gross profit margin planning, it is calculated based on the percentage distribution from year 3. However, to get 100% in total, don't we need the exact changed percentage of the rest 4 categories at first, then calculate the gross profit margin?

We removed the category lower 5€. So the situation changed. I do not understand the logic of the gross profit margin calculation based on data from year 3. 15%+10%+30%+40%=85%, not 100%. This is a problem.

Answer 1

Hi Yiqing,

The case uses the same distribution percentages because it is based on the same total sales number (EUR 590m) that still includes the sales portion of the <5 EUR category.

You could use a new percentage distribution, but you would have to adjust the sales to exclude the <5 EUR category (i.e. EUR 510.5M = 590 - 88.5)

I added a table below with the detailed view for your own reference, if helpful.

Answer 2

Yiqing,

I see you already received a great answer.

Sharing an additional resource that you might find helpful - a collection of the most common terms that show up in case interviews:

Expert Guide: The Must-Know Consulting Terms for Interviews

Good luck!
Cristian

Answer 3

Hi there,

Lucas gave a great answer already!

Highly recommend you keep practicing, especially using rocketblocks. Remember also here that breaking down the problem piece by piece is key to solving it!