How to find out categories of core business generate positive earnings contribution

Roland Berger Case: Onlinestar
New answer on Apr 26, 2020
2 Answers
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Marcelo asked on Oct 27, 2019

In the solution it is said to remove the category of products under 5 EUR from the core business since it does not provide a positive earnings contribution. From Table 2 I can see the gross margins and that particular category is very low (5%). However, I could not find any other information of fixed costs structure to conclude if indeed only that category does not contribute for positive earnings.

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Christian replied on Oct 27, 2019
I am a Finance PhD Student, preparing for MBB interviews taking place by the end of this year.

Hi Marcelo, I think it says in the case that due to the costs associated with free shipping of the products, those with a gross margin of less than 10% do not contribute to overall profit. Together with Table 2 this implies (from my point of view) that only those products with a price below 5 EUR need to be removed as all other categories have a gross margin higher than 10%. Does this answer your question?

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Marcelo on Oct 27, 2019
Thanks Christian, totally missed that - quite clear now. Thanks for the prompt reply. Cheers
Luca
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replied on Apr 26, 2020
BCG |NASA |20+ interviews with 100% success rate| 120+ students coached |GMAT expert 780/800 score

Hello,

You can find your answer in the following pRt of the text:

Based on a conducted investigation, it was found that products with a gross profit margin of less than 10% do not make a positive contribution to earnings due to high shipping costs.

If you take a look at table 2, you see that the only products with gross margin below 10% are the ones <5€.

Best,
Luca

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