Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Interview Partners to connect and practice with!
Back to overview

Playing with profit levers, part 3

Is there a faster way of solving this prompt? My answer is below.


A company has two product lines: shoes and dresses. The shoes account for 25% of revenue, and dresses 75%. The shoes have 40% margin, and dresses 20%. The company has fixed costs of $20M and profits of $20M. The CEO wants to improve profits to $25M by changing the sales mix towards more profitable shoes. Assuming the total revenue stays constant, what would the sales mix have to be for the CEO to reach her target?

Objective: New sales mix % = ?

Givens

  1. Shoe Revenue (%) = 25%
  2. Dress Revenue (%) = 75%
  3. Shoe Margin = 40%
  4. Dress Margin = 20%
  5. FC = $20M
  6. Profit = $20M
  7. New Profit = $25M

Calculations

  1. CM = Profit - FC = $20M + $20M = $40M
  2. CMR = (25% * 40%) + (75% * 20%) = 25%
  3. Revenue = CM / CMR = $40M / 25% = $160M
  4. New CM = New Profit - FC = $25M + $20M = $45M
  5. New CMR = $45M / $160M = 28%
  6. New Shoe Share % = x
  7. New Dresses Share % = 1 - x
  8. Mix formula: (Shoe Margin * New Shoe Share) + (Dress Margin * New Dress Share) = New CMR ==> (0.4 * x) + (0.2 * (1 - x)) = 0.28 ==> x = 0.4 & 1 - x = 0.6
  9. New Shoe Share: 40%
  10. New Dress Share: 60%
0
< 100
0
Be the first to answer!
Nobody has responded to this question yet.
Similar Questions
Consulting
Playing with profit levers
on Mar 13, 2025
USA
3
< 100
Top answer by
Mariana
Coach
You CAN make it! | xMckinsey | 1.5h session | +200 sessions |Free 15-Minute Call
5
3 Answers
< 100 Views
Consulting
Playing with profit levers pt. 2
20 hrs ago
USA
4
< 100
Top answer by
Ex-BCG Principal & Senior Recruiter in Germany | 300+ real recruiting interviews at BCG | Free 15min intro call
1
4 Answers
< 100 Views
+1
Consulting
APD McK final round - how bad was it?
on Nov 28, 2024
USA
4
800+
Top answer by
Hagen
Coach
#1 recommended coach | >95% success rate | 8+ years consulting, 8+ years coaching and 7+ years interviewing experience
75
4 Answers
800+ Views
+1
How likely are you to recommend us to a friend or fellow student?
0 = Not likely
10 = Very likely
Thanks for your feedback! Your opinion helps us make PrepLounge even better.