Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Stephanie

0 Meetings

12 Q&A Upvotes

USD 149 / Coaching

2

Question 6

Hello,

Regarding the answer to question #6 : "Wages will decrease by (25%*0.85)=21% to about 4% of total costs when moving production to China" what is the logic behind it? ( Multiplying it with .85 and then stating that 4% is the answer?

Thank you so much.

Hello,

Regarding the answer to question #6 : "Wages will decrease by (25%*0.85)=21% to about 4% of total costs when moving production to China" what is the logic behind it? ( Multiplying it with .85 and then stating that 4% is the answer?

Thank you so much.

2 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Stephanie

0 Meetings

12 Q&A Upvotes

USD 149 / Coaching

Hello Anonymous,

The key here is to understand that both the 21% and 4% are relative to total cost.

Here it goes:

Current wages are 25% of total costs.

In China, wages are only 15% of what they currently are. Hence you save 85%.

By moving to China, wages will become approx 4% of total cost (= 25% * 15%).

Said differently, you will save approx 21% of total cost (= 25% * 85%).

Does this make sense?

Best

Stephanie.

Hello Anonymous,

The key here is to understand that both the 21% and 4% are relative to total cost.

Here it goes:

Current wages are 25% of total costs.

In China, wages are only 15% of what they currently are. Hence you save 85%.

By moving to China, wages will become approx 4% of total cost (= 25% * 15%).

Said differently, you will save approx 21% of total cost (= 25% * 85%).

Does this make sense?

Best

Stephanie.

Hi Stephanie, — Anna on Aug 30, 2019

Just following up on that. Shouldn't the new total costs be lower if the wages have decreased? — Anna on Aug 30, 2019

Book a coaching with Luca

100% Recommendation Rate

27 Meetings

1,968 Q&A Upvotes

USD 179 / Coaching

Stephanie gave a great explanation. I would just add that the wages will be the 4% of the original total costs.

If we refer to the new amount of costs, producing in china, the incidence of the wages will be

4% / (100 % - 21%) = 5%

Hope it helps,
Luca

Stephanie gave a great explanation. I would just add that the wages will be the 4% of the original total costs.

If we refer to the new amount of costs, producing in china, the incidence of the wages will be

4% / (100 % - 21%) = 5%

Hope it helps,
Luca

Related BootCamp article(s)

Getting Up to Speed

In order to repeatedly demonstrate prerequisite skills under the pressure of a real case interview, you need to learn the basics and practice cases.

1 Q&A

Related case(s)

MBB Final Round Case - Smart Education

Solved 8.9k times
MBB Final Round Case - Smart Education Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US. The mission of SmartBridge is to help as many students as possible to complete studies and prevent that they drop from the school system, in particular in disadvantaged areas. The client is considering starting operations for its services in the Chicago area. They hired us to understand if that makes sense. Due to the nonprofit regulation, SmartBridge should operate on its own in the market, without any partnership. How would you help our client?
4.6 5 369
| Rating: (4.6 / 5.0)

Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US. The mission of SmartBridge is to help as many students as possible to complete studies and prevent that they drop from the school system, in particular in disadvant ... Open whole case

Espresso, Whatelse?

Solved 6.6k times
Espresso, Whatelse? Espresso Whatelse is an Italian company that produces coffee and espresso machines since 1908. It is the Italian market leader and has a strong presence overall in Europe. In 2019, Espresso Whatelse has increased its revenues but it has seen declining profit margin. Your client wants to understand the root causes of this 2019 trend and how to increase its profit margin again.  
4.6 5 337
| Rating: (4.6 / 5.0)

Espresso Whatelse is an Italian company that produces coffee and espresso machines since 1908. It is the Italian market leader and has a strong presence overall in Europe. In 2019, Espresso Whatelse has increased its revenues but it has seen declining profit margin. Your client wants to understand ... Open whole case

McKinsey Digital / BCG Platinion: Oil & Gas Upstream Technology

Solved 1.5k times
McKinsey Digital / BCG Platinion: Oil & Gas Upstream Technology [PLEASE NOTE: This is a technically difficult case and should only be completed by those coming in as a Technology specialist, i.e. recruiting for McKinsey Digital, BCG Platinion, etc.] Our client is a multinational oil and gas company. While they are vertically integrated and have upstream, midstream, and downstream divisions, they have recently been experiencing competitivity issues in the upstream gas division, which brings in $1B in profits annually. Our client’s upstream division has offices in Australia and Indonesia. Their work is highly dependent on their IT systems, as they have to constantly monitor wells and pipes (pressure, hydrocarbon count, fluid makeup, etc.) The upstream division has two large legacy IT systems that are primarily used for downstream operations but have been modified for upstream purposes. These systems are managed by a central team in the US which is responsible for all IT issues across the business. They triage issues/enhancements and then manage development teams in India and Finland who complete the work.
4.6 5 35
| Rating: (4.6 / 5.0)

[PLEASE NOTE: This is a technically difficult case and should only be completed by those coming in as a Technology specialist, i.e. recruiting for McKinsey Digital, BCG Platinion, etc.] Our client is a multinational oil and gas company. While they are vertically integrated and have upstream, midstr ... Open whole case

Hot Wheels

Solved 1.3k times
Hot Wheels Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability.
4.6 5 57
| Rating: (4.6 / 5.0)

Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability. Open whole case