If you are prepararing for the BCG Potential Test and have not already done so, we recommend taking the official BCG Expensive Oil Case at the beginning of your preparation. It is a great example of a test in the online case format. As mentioned in our BCG Potential Test guide, there's also a paper format of the test that you should be aware of.
Unfortunately, the solutions in the BCG Expensive Oil case are not detailed. As a consequence, over the past few years, we've had many candidates reaching out to us and asking us questions about the answers for this test. Today, we have decided to make our detailed answers accessible to everyone.
The approach we use below to answer the questions is inspired from the BCG Potential Test Training Programme where we teach a step-by-step method to crack the test. This method has proven to be very effective so far as more than 85% of people who have trained with us ended up being successful at the test.
So let's dive in and take a look at the four questions in the BCG Expensive Oil Case one by one. If you have not already downloaded the test you can do so here.
The key element we are interested in here is the "Average gross margin".
The formula for gross margin is: (Revenue - Costs) / Revenue = Profits / Revenue.
The profit per littre for each type of gasoline is the same (€0.10). But the PERCENTAGE gross margin is different for each type of gasoline.
To calculate the AVERAGE gross margin, we therefore need to calculate: Average profit per litre / Average revenue per litre.
Average profit per litre = €0.10
Average revenue per litre = 30% x €1.7 + 40% x €1.6 + 30% x €1.5 = €0.51 + €0.64 + €0.45 = €1.6. Note you could actually skip this calculation by noticing that the Fast gasoline (€1.7 per litre) and the Regular gasoline (€1.5) are sold in the same proportions and their price differential with the High gasoline is the same (+/- €0.1). The average revenue per litre across the three types of gasoline therefore has to be the revenue per litre for the High gasoline.
Average gross margin = €0.10 / €1.6 = 6.25%
The correct answer is therefore Answer B.
The key elements we are interested in here are the "price per litre" that "maximises profits on gasoline sales". We are also told to assume the company is only selling High gasoline (€1.6).
Profits on gasoline can be calculated using the following formula: (Gasoline price per litre - Gasoline cost per litre) x Litre per car per week = Gasoline profit per litre x Litre per car per week.
Let's look at these values in the four Price options we are given.
Price option A
- Profit per litre = €0
- Litre per car per week = 150
- Total profits = €0 per car per week
Price option B
- Profit per litre = €0.1
- Litre per car per week = 130
- Total profits = €13 per car per week
Price option C
- Profit per litre = €0.2
- Litre per car per week = 100
- Total profits = €20 per car per week
Price option D
- Profit per litre = €0.3
- Litre per car per week = 60
- Total profits = €18 per car per week
Total profits are therefore maximised in option C when the Gasoline price per litre is €1.7. The correct answer is answer C.
Note: a possible shortcut here is to notice that the max revenue will be reached when the lines for the gasoline price and the gasoline usage cross. The closest point to the crossing point is C. The correct answer is therefore answer C.
The key elements we are interested in here are the "price per litre" that "maximises SALES from mini markets".
The question is therefore similar to the previous one. But intead of maximising PROFITS from gasoline sales, we want to maximise SALES from mini markets.
Sales from mini markets can be calculated using the following formula: Cars buying from gas station per week x Average retail sales per car (€).
The Average retail sales per car (€) is the same for all four gasoline price options (€10). The sales from mini markets are therefore maximised when the number of cars buying from the gas station per week is the highest (€1.5 per litre).
The correct answer is answer A.
The key elements we are interested in here are the "price per litre" that "maximises COMBINED PROFITS".
Combined profits can be calculated using the following formula: Profits from gasoline sales + Profits from mini market sales.
We calculated the Profits PER CAR PER WEEK from gasoline sales in Question 2 so we can reuse that information. We will just need to multiply it by the number of cars in each price option to calculate the Profits PER WEEK from gasoline sales.
In addition, we also need to calculate the Profits from mini market sales in the four price options that we are given. Profits PER WEEK from the mini market sales can be calculated as follows: Number of cars buying from gas station per week x Average retails sales per car (€) x Net margin (30%).
Price option A
- Profits from mini market = 130 x €10 x 30% = €390 per week
- Profits from gasoline sales = 130 x €0 = €0 per week
- Total profits = €390 per week
Price option B
- Profits from mini market = 90 x €10 x 30% = €270 per week
- Profits from gasoline sales = 90 x €13 = €1,170 per week
- Total profits = €1,440 per week
Price option C
- Profits from mini market = 60 x €10 x 30% = €180 per week
- Profits from gasoline sales = 60 x €20 = €1,200 per week
- Total profits = €1,380 per week
Price option D
- Profits from mini market = 40 x €10 x 30% = €120 per week
- Profits from gasoline sales = 40 x €18 = €720 per week
- Total profits = €840 per week
Note you could decide not to calculate total profits for Option D here because you already know that it is lower for option C than for option B.
The correct answer is therefore answer B.
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Do you agree with our approach for the different questions? Did you use an approach that's better / faster than ours?
Let us know in the comment section below!
The IGotAnOffer team