1/4 wine - 3/4 grapes

Question

In the assignment of the case it says that only 1/4 of the grapes are used for the own wine production and 3/4 of them are directly resold, do I understand that correctly? Why then is not only 1/4 of the total grapes taken into account when calculating the number of wine bottles?

Answer 1

Hi there,

full harvest should be taken into account, as the question asks about the production potential (accounts for all grapes), not what is actually practiced (only ¼ being used for own production).

Suggest to always pay close attention to how exactly a question is worded and clarify with the interviewer, if unclear - protects you from falling into quant traps.

Hope this helps.

Regards, Andi

Answer 2

Hi there,

This is correct yes. However, in the calculation you want to look at what the potential total production would be. This is an important step to understand total potential revenue streams (quantity of bottles x price per bottle). At current stage, only ¼ of the wine is being sold due to a low brand image. There are no other major limitations that could prevent total production of grapes. As such, if the brand image is improved, demand might increase to such an extent that all grapes would be used for wine production.

I hope that was helpful!

Adriane

Answer 3

Hi there,

Andi is exactly right here.

And I need to echo his point: don't charge ahead without checking assumptions.

Setup the target # to calculate. Setup the formula/math. Use this to then sense check if anything is missing!

Answer 4

Hi there,

To my understanding, it's the difference between what they could produce now with a quarter of their total quantity vs what they could produce in the future if they used their full potential.

Best,
Cristian

Answer 5

Current Production Level: 25% of total grapes

Potential Production Level: 100% of total grapes

If you are trying to calculate current production you use the first equation, for potential production you use the second.