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case math
New answer on Feb 29, 2020
5 Answers
2.3 k Views
Anonymous A asked on Feb 11, 2020

Hi guys!

I can't find 29 789 as a solution for the following question:

A clothes shop sells clothes at 160% of the import price. Other costs consist of renting ($1,350/ month), staff ($1,120/ month) and operation ($825/ month). What is the profit of the shop in February if in this month, it purchases $39,840 worth of clothes and there is still $15,300 worth of goods in stock from January, assuming that at the end of February, everything will be sold out?

Can someone help me?

Thanks in advance for your help!

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Luca
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replied on Feb 29, 2020
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello,

I will try to make it clear.

  • Revenues= Total clothes import price * 160% = ( 39840 + 15300 ) *160% = 88224
  • Costs= Total clothes import price + rent + staff + ops = 55140 + 1350 + 1120 + 825 = 58435
  • Profits = Revenues - costs = 29789

Best,
Luca

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Francesco
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updated an answer on Feb 11, 2020
#1 Coach for Sessions (4.500+) | 1.500+ 5-Star Reviews | Proven Success (➡ interviewoffers.com) | Ex BCG | 10Y+ Coaching

Hi Anonymous,

the following are the inputs of the problem:

  • Price: 1.6x import goods
  • Renting: 1350/ month
  • Staff: 1120/ month
  • Operation: 825/ month
  • Import goods Feb: 39840
  • Import goods Jan: 15300
  • All goods sold out in Feb

Assuming stock becomes costs when sold, profits can be calculated as follows:

Revenues – Import goods – Renting – Staff – Operation

<->55140*1,6-55140-1350-1120-825

<->88224-58435

<->29789

Best,

Francesco

(edited)

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Anonymous A on Feb 12, 2020

Hi Francesco! Thanks for your insights. Why do I take into consideration costs of imported goods in January if I calculate the profit of February? Why imported goods bought in January are not paid in January?

Francesco on Feb 13, 2020

Hi Anonymous, they are indeed paid in January but you are also getting the value of the inventory (which is the same). While in February you are “losing” the value of the inventory but getting the price paid for it. I agree this could have been clarified better in the text. Hope this helps

Ian
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Content Creator
replied on Feb 11, 2020
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

I have a hunch you forgot to subtract the $15,300 worth of stock from January.

You need to subtract the January stock cost, because you sold it in Feb. For profit-taking purposes, you have to cosnider all COGS.

In case this is because you're missing the $15,300....

Revenue = 88,224 (55,140*1.6)

Costs = 30,840 + 15,300 + 1,350 + 1,120 + 825

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Clara
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replied on Feb 11, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Don´t forget to take into consideration the remaining stock -that indeed has a value for the company, is not "sunk"-.

Profits can be calculated as follows:

PROFIT = Revenue – Import goods – Rent – Operations - Staff

PROFIT = 55140*1,6 - 55140 - 1350 - 82 5- 1120 = 29789

Hope it helps!

Cheers,

Clara

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Anonymous replied on Feb 11, 2020

I agree with Ian's argumentation

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Luca gave the best answer

Luca

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