Why are Cost of Sales fixed here?

DHL Consulting case: Bike Shop
New answer on Apr 20, 2020
1 Answer
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Marc
Skilled
asked on Apr 20, 2020

Everything else in this case seems fairly straight forward (the calculations and short term/long term strategy element at the end), but I'm struggling to understand why the interviewee should pick up the fact that cost of sales are fixed.

Am I wrong in my understanding that cost of sales and COGS are interchangeable? In which case if we are selling less bikes from one year to the next, this should be reflected in a change in cost of sales.

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Sidi
Expert
replied on Apr 20, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi!

This is an unfortunate wording in the case notes. What they mean ist that the Cost of Sales are fixed per unit (i.e., per bike), since it makes up a fixed percentage of the revenue.

In the overall context, Cost of Sales are of course variable, depending on the number of bikes produced/sold.

Cheers, Sidi

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Marc on Apr 20, 2020
Thanks for clearing that up Sidi, as you say the wording in the interviewee prompt is quite unclear here I think
Sidi gave the best answer

Sidi

McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers
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