BCG Potential Test #1

Boston Consulting Group Potential Test
Practice Test
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BCG Potential Test #1
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Instructions
Online case. During your recruiting process with BCG you will have to go through an online case. The
purpose of this exercise is to test your analytical and logic skills as well as your business sense.
Each question is divided into 2 parts:

• on the left, you will find the question itself
• on the right, you will find the information you need to answer the question
No calculator. This sample test has been designed to be completed without a calculator. However, we
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wrong answer.

BCG Potential Test – High Tech Entertainment
Question 1 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

What is the profit margin of
the home entertainment
category?
Profit margin
1. 20.0% Company overview Finances – End of FY 2017

2. 17.5%
3. 12.5% HTE‘s financials
4. 10.0% High Tech Entertainment (HTE) is a
multinational conglomerate with Revenues Profit margin
headquarters in London. The company is (£ bn) (%)
one of the leading electronics A - -
manufacturers in the world and has more
B 12 12.5%
than 500 stores worldwide. HTE mainly
sells TVs, white goods, video games, C 5 10.0%
sound systems, smartphones and digital
Question
cameras and x it/ is23known for the quality of D 8 12.5%
its high end products. Total 40 15.0%
The company has experienced a decline Competitors’ profitability in home

in profitability over the last three years. As entertainment
a consequence, it is trying to increase the 30%
profit margins of all its business streams. 25%
20%
HTE segments its products in four main
15%
categories: home entertainment (A), white
goods (B), smartphones (C) and digital 10%
cameras (D). Segment A in North 5%
America is limited to TVs only. 0%
Sonic Labs Yosi Peach QPN
Electronics Sound


How much will the total cost
of category B be at the end of
FY 2022 assuming revenues
Profit margin
grow at 5% p.a. and profits
decline at 10% p.a. in each Company overview Finances – End of FY 2017
segment?
HTE‘s financials
1. £18.5bn High Tech Entertainment (HTE) is a
2. £14.4bn headquarters in London. The company is (£ bn) (%)
3. £12.2bn one of the leading electronics A - -
4. We lack sufficient manufacturers in the world and has more
B 12 12.5%
information than 500 stores worldwide. HTE mainly
Question

20%
15%
Electronics Sound


How does HTE’s profit margin
in the home entertainment
category compare to its
Profit margin
second least profitable
competitor? Company overview Finances – End of FY 2017
1. 25% higher HTE‘s financials

2. 33% higher High Tech Entertainment (HTE) is a
3. 41% higher headquarters in London. The company is (£ bn) (%)
4. 100% higher one of the leading electronics A - -
manufacturers in the world and has more
B 12 12.5%
than 500 stores worldwide. HTE mainly
Question

20%
15%
Electronics Sound


Rank the manufacturing
regions from the most cost-
efficient to the least cost-
Manufacturing efficiency
efficient.
Manufacturing plants Cost distribution
1. Europe, North America,
Asia, Australia
2. Europe, Asia, North HTE has manufacturing facilities across North
Europe Asia Australia
four continents. The company opened its Am.
America, Australia 100%
first facility in Europe thirty years ago and
3. Asia, Europe, North then expanded to North America and 90%
90%
America, Australia Australia. Recently, it started developing 79% 78%
4. Asia, Europe, Australia, in Asia to take advantage of attractive 80% 74%
79%
79%
Cost mix within region (%)

North America labour costs. Europe has traditionally 70%
been HTE‘s biggest market. In 2017, 64%
Question
of revenuesxin/ home23 entertainment came 60%
from the region, 12% from North America,
16% from Asia and 8% from Australia. 50%
39% 37% 41%
41%
41%
40% 39%
39% 36% 37%
37%
36%
36%
The percentage distribution of
manufactured devices for each region is 30%
40% in home entertainment, 30% in white
20%
goods, 20% in smartphones and 10% in
digital cameras every year. In total, in 10%
2017, 62.50m devices were manufactured
in Europe, 40.00m in Asia, 50.00m in 0%
North America and 11.04m in Australia. 0 10 20 30 40 50 60 70 80 90 100
HTE’s total manufacturing costs across all Cost split between regions (%)
categories and all regions amount to Labour Raw Materials Overheads
£9.2bn.


Which of the following
statements, if true, best
explains why Australia’s cost
profile is different from those
of the other three regions? Manufacturing plants Cost distribution
a. Labour costs in Australia
are a lot higher than in the
other regions HTE has manufacturing facilities across North
b. HTE’s raw materials costs 100%
in Australia are high due then expanded to North America and 90%
90%
to low manufacturing Australia. Recently, it started developing 79% 78%
volumes in Asia to take advantage of attractive 80% 74%

c. HTE’s overheads are low labour costs. Europe has traditionally 70%
in Australia because it is been HTE‘s biggest market. In 2017, 64%
Question
supported by other from the region, 12% from North America,
regions for HR, finance, 16% from Asia and 8% from Australia. 50%
marketing, etc. 40% 39%
39%
36%
37% 41%
41%
41%
d. Corporate taxes on profits The percentage distribution of
in Australia are a lot manufactured devices for each region is 30%
higher than in other 20%
regions digital cameras every year. In total, in 10%
1. Statements a and b in Europe, 40.00m in Asia, 50.00m in 0%
2. Statement a
3. Statements b and c
4. Statement c £9.2bn.
5. Statement d


Assuming that the profit
margin of the home
entertainment category is the
same across all regions and
that HTE has zero inventory in Manufacturing plants Cost distribution
Europe what was the TOTAL
cost per device in Europe in
home entertainment in 2017? HTE has manufacturing facilities across North
100%
1. £395.65 then expanded to North America and 90%
90%
2. £328.40 Australia. Recently, it started developing 79% 78%
3. £307.20 in Asia to take advantage of attractive 80% 74%

4. £289.15 labour costs. Europe has traditionally 70%
been HTE‘s biggest market. In 2017, 64%
Question
from the region, 12% from North America,
16% from Asia and 8% from Australia. 50%
39% 37% 41%
41%
41%
40% 39% 36%
The percentage distribution of
manufactured devices for each region is 30%
20%
digital cameras every year. In total, in 10%
£9.2bn.


statements regarding the
revenues of the home
entertainment category in
2017 are correct? Manufacturing plants Cost distribution
a. The revenues generated
in each region are not
proportional to the total HTE has manufacturing facilities across North
manufacturing costs 100%
b. The region with the lowest then expanded to North America and 90%
90%
total manufacturing costs Australia. Recently, it started developing 79% 78%
had the lowest revenues in Asia to take advantage of attractive 80% 74%

c. Regions with low labour costs. Europe has traditionally 70%
overhead costs tend to been HTE‘s biggest market. In 2017, 64%
Question
have higher revenues from the region, 12% from North America,
than regions with high 16% from Asia and 8% from Australia. 50%
overhead costs 40% 39%
39%
36%
37% 41%
41%
41%
d. Regions with similar The percentage distribution of
manufacturing cost manufactured devices for each region is 30%
distribution profiles had 20%
the same level of digital cameras every year. In total, in 10%
revenues 2017, 62.50m devices were manufactured
1. Statements a and b
2. Statements b and c
3. Statements a, b and c £9.2bn.
4. Statements a, c and d


Excluding North America,
which region will have the
highest cost per device in
Product quality
segment A for 2018 assuming
that the price per device Faulty products Segment A units sold
remains the same across all
regions and that the profit
margin for Europe and After the expansion of its manufacturing
facilities in Asia, HTE noticed a reduction 20
Australia remains the same? in product quality in the region. This 18
seems to be one of the reasons for HTE’s
1. Europe profit margin decline. HTE analysts 16
2. Asia predict that the average profit margin in 14
3. Australia Asia will drop by 25% in the home
Million of units
entertainment segment in 2018. 12
4. Not enough information to Question x /profit
23 margin of HTE in the
Currently, the
decide home entertainment category is the same
10
across all regions. 8
HTE offers a 12-month warranty and 6

every faulty product returned costs the 4
company £50. This includes shipping,
and replacement of faulty parts. The 2
probability that a product manufactured in 0
Europe is faulty is 5%. This probability is North
10% in Asia, 4% in North America and America
2% in Australia. The average price for the 2013 13.03 6.25 10.00 2.45
home entertainment category in 2017 was 2014 15.64 5.00 1.93 2.70
£652 in Australia, £933 in North America, 2015 18.77 4.00 10.00 2.52
£360 in Asia and £613 in Europe.


Which of the following actions
will NOT help HTE prevent a
further profit margin decline in
Product quality
Asia?
Faulty products Segment A units sold
1. Improve product quality
2. Increase training for the
employees of the After the expansion of its manufacturing
manufacturing facilities in in product quality in the region. This 18
Asia seems to be one of the reasons for HTE’s
3. Streamline the profit margin decline. HTE analysts 16
manufacturing process predict that the average profit margin in 14
across all regions Asia will drop by 25% in the home
Million of units
4. Expand manufacturing Question x /profit
Currently, the
capacity further home entertainment category is the same
10
across all regions. 8

and replacement of faulty parts. The 2
probability that a product manufactured in 0
Europe is faulty is 5%. This probability is North


statements are supported by
the information provided?
Product quality
a. Products in regions with
higher prices are less Faulty products Segment A units sold
likely to be faulty
b. 2017 was a really bad year
for HTE’s sales in North After the expansion of its manufacturing
America in product quality in the region. This 18
c. In Europe, HTE’s unit seems to be one of the reasons for HTE’s
sales increase by 20% profit margin decline. HTE analysts 16
every year (2013-15) in predict that the average profit margin in 14
segment A Asia will drop by 25% in the home
Million of units
d. The high probability of Question x /profit
Currently, the
faulty products in Asia home entertainment category is the same
10
was the main reason for across all regions. 8
the sales decline in the
region
1. Statements a and c and replacement of faulty parts. The 2
2. Statements b and d probability that a product manufactured in 0
3. Statement c Europe is faulty is 5%. This probability is Europe Asia
North
Australia
4. Statement d
5. All statements are correct


What is the variable cost per
TV in Europe?
TV business
1. £150
2. £160 TVs in Europe Data for Europe 2017
3. £170
4. £180
The home entertainment segment is the
biggest one for HTE. Therefore, the Average Market
company has decided to investigate this Price (£) Share
category further, in order to identify other
reasons for the profitability decline than TVs 800 40%
the decline in product quality. Total European market size (# of units)
Within Europe, products in the home 2,000,000
Question x / category
entertainment 23 account for a
Fixed cost of TVs
large share of total revenues. In
particular, televisions are a very important 40% of 2017 revenues from TVs
product in the region. When HTE started
manufacturing in Europe it only produced
two types of TVs. Today they offer a Based on their experience, the European
range of models from small LCD screens managers of the company know that they
to large plasma TVs and home cinemas. break even at 400,000 units in the TV
category .
HTE‘s pricing strategy is different in each
region. The prices of TVs are 10% higher The break even point is the point at which
in Europe than in Asia and 20% higher the company’s revenues are equal to its
than in Australia. TV prices in North total costs.
America are 40% higher than in Australia.


In Asia, how does the price of
TVs differ from the average
product price in the home
TV business
entertainment category,
assuming that this average TVs in Europe Data for Europe 2017
price is £360?
1. TV prices are more than The home entertainment segment is the

two times higher than the company has decided to investigate this Price (£) Share
average price in the home category further, in order to identify other
entertainment category reasons for the profitability decline than TVs 800 40%
2. TV prices are exactly two the decline in product quality. Total European market size (# of units)
times higher than the
average price in the home Question x / category
23
entertainment account for a
entertainment category Fixed cost of TVs
3. TV prices are less than particular, televisions are a very important 40% of 2017 revenues from TVs
two times higher than the product in the region. When HTE started
average price in the home manufacturing in Europe it only produced
entertainment category two types of TVs. Today they offer a Based on their experience, the European
4. TV prices are equal to the to large plasma TVs and home cinemas. break even at 400,000 units in the TV
average price in the home category.
entertainment category HTE‘s pricing strategy is different in each


How much profit did the TV
business generate in North
America in 2017, assuming
TV business
that the profit margin across
all regions is the same? TVs in Europe Data for Europe 2017
1. £780M
2. £360M The home entertainment segment is the
3. £190M company has decided to investigate this Price (£) Share
4. None of the above / we category further, in order to identify other
lack sufficient information reasons for the profitability decline than TVs 800 40%
the decline in product quality. Total European market size (# of units)
Question x / category
entertainment 23 account for a
Fixed cost of TVs
particular, televisions are a very important 40% of 2017 revenues from TVs
product in the region. When HTE started
manufacturing in Europe it only produced
two types of TVs. Today they offer a Based on their experience, the European
to large plasma TVs and home cinemas. break even at 400,000 units in the TV
category .
HTE‘s pricing strategy is different in each


How long will it take for HTE to
break even if the company
decides to acquire Sonic Labs
Sonic Labs
taking into account the risk of
failing certification and Ultra HD 4D Curved TVs Acquisition information
assuming that the fixed and
variable costs here are
negligible? Sonic Labs, one of HTE‘s new Increase in sales
competitors, developed a unique ultra HD
4D curved TV. Currently HTE has a large # of new 4D TVs / year 500
1. 24 months range of TVs on offer but not a 4D model.
2. 36 months Sonic Labs’ TV is connected wirelessly to Price (including 2 armchairs) £4,080
3. 40 months special armchairs that vibrate based on
what is displayed on screen. The product Cannibalisation
4. 48 months
currently has a patent pending status and
Question x / 23 the required safety
has not achieved For every 10 new 4D TVs HTE sells, its
certifications yet. traditional TV sales go down by 1 TV
Price of traditional TVs £800

The board of directors of HTE is
considering acquiring Sonic Labs in order Risk of failing safety
to add the new TV to their product range. 10%
certifications
HTE is planning to develop an app that
lets users stream content from HTE‘s Acquisition price £5.4m
smart phones to the new ultra HD curved
TV via Wi-Fi.
Yosi Electronics, which generated £175M

of profit in the TV business in 2017, and
has the same pricing strategy as HTE,
has also shown interest in Sonic Labs.


What would be the % increase
in Yosi Electronics’ revenues
in the TV business in 2018
Sonic Labs
relative to 2017 if they
acquired Sonic Labs Ultra HD 4D Curved TVs Acquisition information
assuming that the profit
margin of Yosi Electronics in
the TV business is the same Sonic Labs, one of HTE‘s new Increase in sales
with their overall profit margin 4D curved TV. Currently HTE has a large # of new 4D TVs / year 500
in the home entertainment range of TVs on offer but not a 4D model.
category, no cannibalisation Sonic Labs’ TV is connected wirelessly to Price (including 2 armchairs) £4,080
takes place and the sales of special armchairs that vibrate based on
traditional TVs remains at the
same levels with 2017? Question x / 23 the required safety For every 10 new 4D TVs HTE sells, its
has not achieved
1. 0.026% Price of traditional TVs £800
2. 0.26% The board of directors of HTE is
3. 2.6% considering acquiring Sonic Labs in order Risk of failing safety
4. 26% certifications
TV via Wi-Fi.



Assuming that 50% of HTE’s
new customers use the app,
and that the TV receives the
Sonic Labs
safety certification, how much
should HTE charge per app Ultra HD 4D Curved TVs Acquisition information
download, in order to increase
its revenues by £500 in 2018
(excluding cannibalisation Sonic Labs, one of HTE‘s new Increase in sales
effects)? 4D curved TV. Currently HTE has a large # of new 4D TVs / year 500
range of TVs on offer but not a 4D model.
1. £2.00 Sonic Labs’ TV is connected wirelessly to Price (including 2 armchairs) £4,080
2. £2.80 special armchairs that vibrate based on
3. £20.0
4. £28.0 Question x / 23 the required safety For every 10 new 4D TVs HTE sells, its
has not achieved
Price of traditional TVs £800

The board of directors of HTE is
considering acquiring Sonic Labs in order Risk of failing safety
certifications
TV via Wi-Fi.



Assuming that HTE meets its
2018 target, how much of the
increase in smartphone
Increasing sales
revenues would be
attributable to online Marketing campaign Marketing media effectiveness
advertising?
HTE has concluded that its profitability 35

1. £240m
Media effectiveness index

decline is not related to the TV category. 4 30
2. £680m 30
Instead, it seems to be driven by a 5
3. £800m decrease in sales in the smartphone 25
12
4. £920m category. 20
15
HTE has been developing a new smart
10 9
phone, called HTE K7, over the past two
Question
years. It isxexpecting
/ 23 that the phone’s 5
unique features will make it the best
0
smartphone of the year. TV Online Magazine Radio
In order to boost sales of the new model, HTE measures the efficiency of its
the company has launched an aggressive investments in different channels via an
marketing campaign. The campaign will index. The higher the index, the more
use different media channels: online, TV, efficient the investment.
magazines and radio.
Smartphone revenues (£ bn)
HTE hopes to increase sales in the
smartphone category by 40% in 2018 as 2017 5
a result of the new marketing campaign. 2018 -


Which piece of information
would you need in order to
calculate the payback period
Increasing sales
of the marketing campaign?
a. The cost of the campaign Marketing campaign Marketing media effectiveness
b. The actual profit
generated by the
campaign

c. The actual revenue 30
generated by the decrease in sales in the smartphone 25
12
campaign category. 20
15
1. Option a HTE has been developing a new smart
10 9
2. Option a and b phone, called HTE K7, over the past two
Question
3. Option a and c unique features will make it the best
4. All options 0


Assuming that the overall
media effectiveness remains
constant what should be the
Increasing sales
advertising strategy for the
whole company for next year? Marketing campaign Marketing media effectiveness
1. Focus only on online

marketing

2. Focus on online and TV 30
marketing decrease in sales in the smartphone 25
12
3. Maintain the same category. 20
strategy 15
4. None of the above / we HTE has been developing a new smart
10 9
lack sufficient information phone, called HTE K7, over the past two
Question
unique features will make it the best
0

Question 20 Doc 7
Assuming that HTE’s decline
in online sales follows the
same trend from 2015, that the
Online business
company does not acquire
Sonic Labs, and that Peach Underperforming business Competitive online sales
Sound continues to grow its
online sales at the same pace
what would be the difference Another reason for HTE‘s profitability 10
decline seems to be linked to its online QPN
in online sales between the 9
business.
two companies in 2021?
8
HTE’s market analysts identified that the
1. £7bn competition grew its online sales rapidly, 7
2. £8bn while HTE’s online sales declined.
Additionally, the profit margins of each of 6
3. £9bn Question x / 23in the online business Yosi
HTE’s competitors Electronic HTE *
£ bn
4. £10bn is equal to their respective profit margin in 5
the home entertainment segment while 4
HTE’s profit margin in online sales is half
of its overall profit margin. This is due to 3
Peach
the inefficiency of HTE’s delivery system. Sound Sonic
2
Labs
In an effort to increase its online sales, 1
HTE has decided to restructure its online
business from the ground up. For this 0
purpose, they set aside a £75M budget 2014 2015 2016 2017 2018 *
with a targeted payback period of 2 years.
* Predictions for 2018 take into account the
acquisition of Sonic Labs by HTE.

Question 21 Doc 7
Which company generated the
highest profits in online sales
in 2017?
Online business
1. QPN Underperforming business Competitive online sales

2. Yosi Electronics
3. HTE
4. Peach Sound Another reason for HTE‘s profitability 10
5. Sonic Labs 9
business.
8
competition grew its online sales rapidly, 7
while HTE’s online sales declined.
Question x / 23in the online business
HTE’s competitors
Yosi
Electronic HTE *
£ bn
is equal to their respective profit margin in 5
the home entertainment segment while 4
Peach
2
Labs

Question 22 Doc 7
statements are supported by
the information provided
Online business
(ignoring cannibalisation)?
a. If HTE had acquired Sonic Underperforming business Competitive online sales
Labs in 2016, then it
would have had the
highest online sales in Another reason for HTE‘s profitability 10
that year 9
business.
b. If HTE does not acquire
Sonic Labs, its online 8
sales will go down in 2018 competition grew its online sales rapidly, 7
c. If Sonic Labs is not while HTE’s online sales declined.
acquired by HTE, it will Question x / 23in the online business Yosi
£ bn
have more online sales is equal to their respective profit margin in 5
than HTE by 2021 the home entertainment segment while 4
d. If Yosi Electronics had HTE’s profit margin in online sales is half
acquired Sonic Labs in of its overall profit margin. This is due to 3
Peach
2017, then it would have the inefficiency of HTE’s delivery system. Sound Sonic
2
Labs
had the highest online
sales for that year HTE has decided to restructure its online
1. Statements a and b purpose, they set aside a £75M budget 2014 2015 2016 2017 2018 *
2. Statements a and d with a targeted payback period of 2 years.
3. Statements a, b and d acquisition of Sonic Labs by HTE.
4. Statements a, b and c
5. All statements

Question 23 Doc 7
What market share does HTE
need to capture in online sales
in 2019 in order to achieve the
Online business
targeted payback period?
Underperforming business Competitive online sales
You can assume that the
market size in 2019 is the
same as in 2017 and that Another reason for HTE‘s profitability 10
HTE’s online sales in 2018 9
business.
meet the prediction given in
the chart. 8
competition grew its online sales rapidly, 7
1. 41.45% while HTE’s online sales declined.
2. 34.64% Question x / 23in the online business Yosi
£ bn
3. 22.95% is equal to their respective profit margin in 5
4. 16.32% the home entertainment segment while 4
Peach
2
Labs

Answer key
Question 1 Question 2
Correct answer: 1 Correct answer: 2
The profit margin for segment A can be calculated by The total cost for category B can be forecasted as
taking the following steps: follows:
1. Segment A revenues: 1. Estimate revenues for segment B in 5 years:

Revenues A Revenues B (2022)
= Total Revenues – (Revenues B + Revenues C + = 12 x (1 + 5% x 5) = 12 x 1.25 = £15bn
Revenues D)
= 15 2. Calculate profits in 2017:
Profit B (2017) = 12 x 12.5% = £1.5bn
2. Segment A profits:
Profit A 3. Estimate profits in 2022:
= Total Profit – (Profit B + Profit C + Profit D) Profit B (2022) = 1.5 x (1 – 10% x 5) = 1.5 x 0.5 =
= Total Profit – (Revenues B x Profit Margin B + £0.75bn
Revenues C x Profit Margin C + Revenues D x
Profit Margin D) 4. Calculate costs for 2022:
=3 Cost B = Revenues B – Profit B = £14.25bn
3. Segment A profit margin: The closest answer is therefore answer 2.

Profit Margin A = Profit A / Revenues A = 20%
We have used an estimate method for steps 1) and
Answer 1 is therefore the correct answer. 2). The precise calculations are: Revenues B = 12 x
(1 + 5%)5 = £15.3bn. Profits B = 1.5 x (1 - 10%)5 =
£0.9bn. And Cost B = £15.3bn – £0.9bn = £14.4bn.

Answer key
Peach Sound is the least profitable competitor (10%) Cost efficiency can be defined as the cost of
in the home entertainment category according to the manufacturing per device. For each region, this can
table in Doc 1. QPN is the second least profitable be calculated as: total cost x percentage share of total
competitor (15%) which is the one want to compare costs for that region, and then divide by the number of
HTE to. devices produced in that region.
In Question 1 we calculated that HTE’s profit margin A faster and equivalent way to determine the cost
in the home entertainment category is 20%. efficiency ranking is to divide the share of total costs
(see horizontal axis of Doc 2 graph) by the number of
The percentage difference can be calculated as devices for each region (see text in Doc 2):
follows: (HTE margin - QPN margin) / QPN margin =
(20 - 0.15) / 0.15 = 33%. Here we divide by the QPN • Europe: 34% / 62.50 (ignore the % to make the
margin because it’s the comparison point. calculation easier) => 34 / 62.56 = 0.54
• Asia: 25 / 40 = 0.62
HTE’s profit margin (20%) is therefore 33% higher • North America: 29 / 50 = 0.58
than QPN’s profit margin (15%). Therefore answer 2 • Australia: 12 / 11.04 = 1.09
is the correct answer.
Therefore the right ranking is:
Europe, North America, Asia, Australia
The correct answer is therefore answer 1.

Answer key
a. Wrong. HTE’s labour costs % in Australia is similar Europe: 62.50 M devices

to other regions. In addition, we can’t be certain
that high labour costs in Australia in general Segment A Europe: 25.00 M devices – 40% in home
directly translates into high labour costs for HTE in entertainment
particular. This statement is therefore less likely to
explain HTE’s cost profile in Australia. Revenues A: £15.00bn – from Doc 1
b. Correct. HTE’s raw materials costs % in Australia
are higher compared to other regions. This Revenues A Europe: £9.60bn - 64% of total
statement therefore helps explain the company’s
cost profile in Australia. Profit A Europe: £1.92b - 20% profit margin
c. Correct. HTE’s overheads % in Australia are lower
compared to other regions. If central functions Cost A Europe: Revenues – Profit = £7.68bn
(e.g. HR, finance, etc.) in other regions support
Australia then this could explain the lower Cost per device Europe: Cost A Europe / # of devices
percentage. = £307.20
d. Wrong. High corporate taxes on profits would not
have any impact on the cost profile. As a Therefore answer 3 is the correct answer.
consequence this statement is wrong.
Note that the question is asking to calculate the total
Statements b and c are the right ones and therefore cost per device. Avoid the confusion of calculating the
option 3 is the correct answer. total manufacturing cost from the graph.

Answer key
a. Correct. Europe’s revenue in home entertainment Profit Margin = (Revenues – Cost) / Revenues =
sector is 64% of total revenue which is 4 times (Price – Cost per device) / Price =>
higher than the revenue of Asia (16%). The total Cost per device = Price - Price x Profit Margin =
manufacturing cost for Europe is 34% which is = Price x (1 – Profit Margin) (1)
less than double of the manufacturing cost of Asia
(25%). The current profit margin is the same in all regions
b. Correct. Australia is the region with the lowest total and is 20% for the whole category. Therefore it is 20%
manufacturing cost (12%) and it also has the in each region. If the profit margin for Europe and
lowest revenues in the home entertainment sector Australia remains the same, the region with the
(8%). highest price has the highest cost. Therefore Australia
c. Wrong. Australia has low overhead costs but it has a higher cost than Europe, and we only need to
also has low revenues. compare Australia and Asia.
d. Wrong. North America and Asia have very similar
manufacturing cost distribution profiles but they If the profit margin in Asia drops by 25% => Profit
don’t have the same revenues. Margin (2018) = 20% x 0.75 = 15%
Therefore statements a and b are correct and option 1 Cost per device (Asia) = £360 x (1 – 0.15) =
is the correct answer. = £360 x 0.85 = £306
Cost per device (Australia) = £652 x (1–0.20) =
= £652 x 0.80 = £521.6
Therefore Australia has the highest cost per device

and answer 3 is the correct answer.

Answer key
1. Wrong. Improved product quality will prevent a a. Wrong. Prices in North America are higher than
further decline in profit margin. those in Australia but the probability of a product
2. Wrong. Increasing the training of the employees being faulty is lower in Australia than in North
could possibly lead in less faults during the America.
manufacturing process and therefore improved b. Wrong. We only have information about the home
product quality which will prevent a further decline entertainment category and not HTE as a whole in
in profit margin. North America.
3. Wrong. Streamlining the manufacturing process c. Correct. Looking at the data in the graph we can
across all regions will help reduce the cost of calculate that HTE sales in home entertainment in
manufacturing and therefore prevent a further Europe increased by 20% every year (2013-15).
profit margin decline. d. Wrong. Product quality might have contributed to
4. Correct. The reduction in product quality that has decreased sales based on the information we
lead to a decrease in profitability seems to be have in the document but we do not know if it is
linked to an increase in production capacity in the main reason for the sales decline in Asia.
Asia. As a consequence, increasing capacity is
least likely to improve profit margin.

Answer key
The key here is to first write down the formula that The price of TVs in Europe (£800) is 10% higher than
defines HTE’s break even point in Asia. We can do a simple cross product (aka rule of
3) to find the price in Asia.
# of units to break even x price
= fixed cost + # of units to break even x variable cost Price in Europe 1.1
Price in Asia 1
The unknowns in the above formula are the fixed and
variable costs. Fixed costs are 40% of revenues It therefore follows that:
according to the data. Revenues therefore need to be Price in Europe = (Price in Asia x 1.1) / 1
calculated first. <=> £800 = Price in Asia x 1.1
<=> Price in Asia = £800 / 1.1 = £727.27
Revenues
= # of TVs sold x price The average price in the home entertainment
= market share x market size x price category in Asia is £360 so the price of TVs is more
= 2M x 40% x £800 = £640M than two times higher (£360 x 2 = £720).
Fixed costs Therefore answer 1 is the correct answer.

= 40% x £640M = £256M
Therefore:
Variable costs
= (400,000 x £800 - £256,000,000) / 400,000
= £160

Answer key
The profit margin in the home entertainment category Buying Sonic Labs will increase revenues for HTE as
for HTE has been calculated in question 1 and it is it will sell new 4D TVs. But it will also decrease sales
20%. of old TVs which needs to be taken into account.
From Doc 2 the revenues of the home entertainment The following formula defines the break even point:
category for North America in 2017 are 12% of the Acquisition cost = (Annual Revenues from acquisition
total revenues of this segment. Total revenues of the – Annual Losses because of acquisition) x # of years
home entertainment category are given in Doc 1 x Probability of success
(15bn).
Each element can then be calculated separately:
Therefore revenues in North America • Annual Revenues = 500 x £4,080 = £2,040,000
= 15bn x 12% = £1.8bn • HTE is losing one customer for every ten new
customers therefore the losses are:
The profit in the home entertainment category for Annual Losses = (500/10) x £800 = £40,000
North America is then; £1.8bn x 20% = £0.36bn or • Probability of success: 1-10% = 90%
360M. • Acquisition price = £5.4M
Doc 1 mentions that in North America the home The different values can then be used in the formula:
entertainment category is limited to TVs only. £2M x 90% x # of years = £5.4M. The number of
Therefore the profit in the TV business for North years is therefore 3 years or 36 months.
America is £360 and answer 2 is the correct answer.
Answer 2 is therefore the correct answer.

Answer key
Yosi Electronics profit in 2017 in the TV business was The new customers will be 500 therefore 250 of them
£175M and their respective profit margin is 25% (from (50%) will download the app.
Doc 1). Therefore the revenues for 2017 in the TV
business are: £175M / 25% = £700M In order for HTE to increase its revenue by £500
(excluding revenue cannibalisation) the price of the
The additional revenues from the acquisition of Sonic app should be £500 / 250 = £2.
Labs in 2018 will be: 500 x £4080 x 90% = £1.83M
Note that here we need again to include the Therefore answer 1 is the correct answer.
probability of the new TV failing the safety
certification.
The percentage increase in Yosi Electronics’ revenues

is then £1.83M / £700M = 0.0026 = 0.26%
Therefore answer 2 is the correct answer.
Tip: There is no need to do the final calculation. You

can see that the increase in sales (£1.8M) is less than
1% but more than 0.1% of the total revenues
(£700M).

Answer key
Correct answer: 3 Correct answers: 2
HTE hopes that smart phones revenue will grow by Payback period is calculated as follows:
40%. The expected growth is therefore:
£5bn x 40% = £2bn Payback period = Cost of project / Annual Profits
Online media’ contribution can then be calculated as Therefore answer 2 is the correct answer.
follows:
1. Total media effectiveness is 30 (from the graph)
2. Calculate online media’s percentage contribution:
12 / 30 = 40%
3. Calculate online media’s actual contribution:
£2bn x 40% = £800M
The correct answer is therefore answer 3

Answer key
There is not enough information to answer this Looking at the graph and the information given in the
question. question we can create the following table:
The media effectiveness given is only for the smart 2017 2018 2019 2020 2021
phone segment. No additional information is provided
for the other segments. Peach
6 7 8 9 10
Sound
Moreover, there is not enough information about the HTE 6 5 4 3 2
cost of last year’s campaign and whether any of the
media channels reached their saturation point.
Note that the prediction for HTE for 2018 should not
Therefore answer 4 is the correct answer. take into account the Sonic Lab acquisition.
Therefore the difference in 2021 is £8bn and answer 2


Answer key
The profit margin of all competitors in their online We can ignore cannibalisation for this question.
business is the same with their profit margin in the
home entertainment category which is given in Doc 1. a. Correct. This statement can be concluded since
the combined online sales of Sonic Labs and HTE
Doc 7 specifies: ”… HTE's profit margin in online in 2016 would have been £9bn (7+2) which is the
sales is half of its overall profit margin.” We know highest for that year.
HTE's overall profit margin is 15% (Doc 1). Its profit b. Wrong. We don’t have enough evidence to predict
margin in online sales is therefore 15% / 2 = 7.5%. the online sales of Sonic Lab in 2018 therefore this
statement cannot be concluded.
Online sales profits in 20014: c. Wrong. Again we don’t have enough information to
HTE: £6bn x 7.5% = £0.45bn predict the future online sales of Sonic Labs
Yosi Electronics: £7bn x 25% = £1.75bn therefore this statement cannot be concluded.
Peach Sound: £6bn x 10% = £0.6bn d. Correct. Similar to answer 1 the combined sales
QPN: £9bn x 15% = £1.35 for 2017 would have been £9.5 (7+2.5) which is
Sonic Labs: £2.5bn x 20% = £0.5bn the highest for that year. Therefore this statement
can be concluded.
Yosi Electronics has the highest profits in online sales
therefore answer 2 is the correct answer. Therefore statements a and d are correct and option 2
Tip: There is no need to do all the calculations.
Looking at the features it can be estimated that either
QPN or Yosi Electronics will have the highest profits in
online sales.

Answer key
Question 23
Correct answer: 3
The cost of the investment is £75M and in order for

HTE to achieve a two year payback period it needs to
generate £75M of additional profits in online sales in
two years.
The profit margin for the online sales of HTE is 7.5%

(see Question 21) therefore the additional revenues
that need to be generated from the online sales is:
£75M / 7.5% = £1bn
The 2018 revenues in online sales remain the same

with the revenues in 2017 therefore the 2019
revenues need to increase by £1bn. Therefore 2019
online sales need to be £7bn.
The market size in 2019 is the same as the market

size in 2017 which is 6 + 7 + 6 + 9 + 2.5 = £30.5bn
(see Doc 7 chart).
Therefore HTE‘s market share in 2019 needs to be:

£7bn / £30.5bn = 22.95%
Answer 3 is the correct answer.

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Boston Consulting Group Potential Test

BCG Potential Test #1

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Check your answer sheet against the answer key.

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Review the solutions in the answer key carefully

Do the test again

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Each question is divided into 2 parts:

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Question 1 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. 20.0% Company overview Finances – End of FY 2017

The company has experienced a decline Competitors’ profitability in home

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Question 2 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

The company has experienced a decline Competitors’ profitability in home

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Question 3 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. 25% higher HTE‘s financials

The company has experienced a decline Competitors’ profitability in home

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Question 4 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Cost mix within region (%)

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Question 5 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Cost mix within region (%)

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Question 6 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Cost mix within region (%)

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Question 7 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Cost mix within region (%)

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Question 8 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

HTE offers a 12-month warranty and 6

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Question 9 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

HTE offers a 12-month warranty and 6

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Question 10 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 11 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 12 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. TV prices are more than The home entertainment segment is the

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Question 13 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 14 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Price of traditional TVs £800

Yosi Electronics, which generated £175M

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Question 15 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Yosi Electronics, which generated £175M

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Question 16 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Price of traditional TVs £800

Yosi Electronics, which generated £175M

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Question 17 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

HTE has concluded that its profitability 35

Media effectiveness index

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