# McKinsey PST 2001 Fiji Cola - Detailed answers

If you are preparing for the McKinsey problem solving test you have probably already taken the official McKinsey PST 2001 Fiji Cola. While this test is really helpful to get started, it doesn't contain any detailed answers.

As a consequence, we’ve had multiple candidates reaching out to us over the past few years to help them understand how to pick the correct answers in the McKinsey PST 2001 Fiji Cola. In the blog post below we publish the different candidates’ questions we received and the detailed answers we put together for them.

In our experience successful candidates really go in-depth to understand their mistakes when preparing for the McKinsey PST. In addition, they also study the answers to questions which they answered CORRECTLY and try to look for ways to answer the question FASTER. This is why the three tests in our McKinsey PST Training Programme contain detailed solutions and tips to answer questions faster.

Right, let's now step through each question one by one. If you have not already downloaded McKinsey PST 2001 Fiji Cola, you can find it here.

##### McKinsey PST 2001 Fiji Cola - Question 3 ↑
###### Candidate question
For Question 3, shouldn't the sales revenue come from the table on page 3? So the sales revenue fall between 1985 and 1997 is 2.88-2.72 =0.16m? but thats not in any of the answers so I'm not sure how exactly you do it.

For question 3, the sales in the table are the total cola sales (Fiji + other brands). To calculate the Fiji cola sales you need to apply the Fiji cola market share to the total sales first and then do the subtraction between year 1985 and year 1997.

##### McKinsey PST 2001 Fiji Cola - Question 4 ↑
###### Candidate question
I don't understand how to get to the right result in question 4.

You can answer question 4 by using these steps:

1. Calculate the sales commissions paid in the North, South and West regions
2. Calculate the sales commission paid by Fiji Cola in total (across all four regions)
3. Deduct the sales commissions paid in the East from steps 1 and 2
4. Deduct the price per litre in the East

Let's first calculate the sales commissions paid in the North, South and West regions. In the North, 0.5m litres were sold at \$1.22. Sales representatives get 10% of the difference between the price at which they sell and the minimum selling price (\$1.12). Sales commission in the North therefore were equal to: 0.5m x (\$1.22 - \$1.12) x 10% = \$5k. Similarly, sales commissions in the South and West were \$4k and \$9k respectively.

Second, let's calculate the total sales commisions paid by Fiji Cola across all four regions. We are total that the sales force made \$88k in total, 25% of which were commissions. So, the total sales commission is \$88k x 25% = \$22k.

Third, let's deduct the sales commissions paid in the East from the previous two steps. The commissions paid in the North, South and West are equal to \$5k + \$4k + \$9k = \$18k. The commissions paid in the East are therefore the difference between \$18k and the \$22k paid in total. \$22k - \$18 = \$4k.

Finally, the total sales commissions paid (\$4k) and the number of litres sold (0.4m) are the same in the East and South, so the average selling price must therefore be the same: \$1.22. And B is the correct answer.

##### McKinsey PST 2001 Fiji Cola - Question 5 ↑
###### Candidate question

For Question 5, I found the profit using the minimum price (\$1.12) and divided it by the profit using the prices in the table on page 5 and I got 49% (A) but the answer says its C so I'm not sure where I went wrong.

We created the table below to answer question 5. You can see that total store profit is \$0.72m and total Fiji cola profit is \$0.61m. We are asked to calculate the share of total profits that goes to stores: \$0.72m / (\$0.72m + \$0.61m) = 54%.

 Avg store price / L Avg store profit / L Total store volume (m L) Total store profit (m \$) Avg Fiji cola profit / L Total Fiji cola profit (m \$) North 1.5 0.38 0.5 0.19 0.32 0.16 South 1.45 0.33 0.4 0.132 0.32 0.128 East 1.55 0.43 0.4 0.172 0.32 0.128 West 1.5 0.38 0.6 0.228 0.32 0.192 Total 0.722 0.608

The question states "If the sales force sold all cola at minimum price, and ..." That implies we should assume that stores buy the cola at minimum price from the sales force, i.e. \$1.12 / litre.

##### McKinsey PST 2001 Fiji Cola - Question 9 ↑
###### Candidate question

For question 9, I kind of understand it but I just wanted to clarify; when it says a profit of 42c per litre, profit = revenue - costs. So in this case, what costs is it covering? and why isn't it covering the staff costs?

For question 9, assuming we can produce at no extra cost the additional profits generated are 2,300 litres x \$0.42 = \$966. But in reality, we need to pay two additional full time staff. Full time staff work 40h per week and are paid \$8.1 in Nadi: 2 x 40h x \$8.1 = \$648. So the actual incremental profit is \$966 - \$648 = \$318.

In question 4 and 5 we are told that the production cost is 80c and that the sales force sells the cola for ~122c per litre. So the 42c per litre profit reflects the difference in the production cost per litre and the price at which we sell to stores. We also know that Nadia has 13 full time staff working 40h per week and 2 part time staff working 20h per week, that the production is 8,000 litres per week, and hourly rate is \$8.1/h. So we can calculate the staff cost to be 57c per litre - ie the majority of costs.

Looking at the table above question 9, you can see that the additional full time staff you add produce less and less cola. If you add 1 full time staff, they can produce an additional 1,200 litres per week. If you add 5 full staff, they can only produce 1,000 litres per week per person. This suggests that the more volume you produce the less profitable it will be. In other words, the 57c per litre (and the 80c per litre) is going to increase as we produce more cola at Nadia. Hence why we need to take into account the additional staff cost.

You could think that the 42c per litre should stay the same if the production increases. But this can't be true given the fact that each additional full staff you add to the factory produces less cola. So that should lead us towards taking into account the additional staff cost. That being said, adding ALL of the additional 2 full time staff is an approximation, because part of their cost will already be in the 57c per litre. So answer C is a better answer than answer A, but not 100% perfect. Overall, this question is a bit ambiguous and McKinsey could have done a better job here.

##### McKinsey PST 2001 Fiji Cola - Question 10 ↑
###### Candidate question
For question 10, can you explain why C would be correct? because when you increase the number of staff to 5. Its production/staff = 5000/5 = 1000 which is lowest compared to having 1 to 4 additional staff. Thus, it wouldn't gain the maximum extra profit?

For question 10, answer D is not correct because we have not proven it was correct during the course of the other questions. In the PST, if something has not been proven you can assume it's incorrect. On the other hand, the above Q9 contains the data that enables you to say that answer C is correct.

You are correct that profitability (\$ / litre) will go down. But total profits (\$) is higher with 5 staff than with just 1 staff. Answer C refers to profits (\$), not profitability (\$ / litre). If it had referred to profitability, it would have stated something like "... in order to gain maximum extra profit per litre"

##### Any questions?

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