Question regarding quant part of a case

case question quantitative
New answer on Jul 14, 2022
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Anonymous A asked on Jul 13, 2022
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Hey guys,

I have a question regarding the quant part of a case question.

The overall question was to find a price for the ticket of a concert. In order to determine the price, it was necessary to calculate the cost but I dont really understand where the margin come from (35.220). Is there something I missed in my thinking process? Happy to hear from you.

 

Kind regards

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Moritz
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replied on Jul 14, 2022
Unearth your spike & get the offer |ex-McKinsey | 120+ coachings & interviews @ McKinsey | ESADE MBA | Transition Expert

Hi there,

Since the margin is exactly 50% of the cost, it seems as though cost based pricing was applied. That's when all cost is added up together with the desired margin (in this case 50%) and pricing is then done in the last step, which is the calculation detailed in the exhibit.

Hope this helps!

Best,

Moritz

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Anonymous A on Jul 14, 2022

Thank you very much. I thought that cost based pricing is defined as cost + mark up. Why they subtract the revenue from that sum after that?

Moritz on Jul 14, 2022

Think of it this way: Start with the standard profit formula -> Profit = Rev - Cost (whereby 2/3 revenue streams are known i.e. hotel + sponsoring -> ticket price is unknown and becomes an X). Then you plug in the values you have, including the profit margin that is meant to be 50% of the cost -> 35,220 = [36,000 + 300 * X] - 74,220. Then you rearrange the formula to solve for X i.e. ticket cost -> X = [(74,220 + 35,220) - 36,000]/300 = 232,20

(edited)

Anonymous A on Jul 14, 2022

This is extremely helpful, many thanks Moritz

Moritz gave the best answer

Moritz

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Unearth your spike & get the offer |ex-McKinsey | 120+ coachings & interviews @ McKinsey | ESADE MBA | Transition Expert
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