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wrong answer.
1. £306
2. £298 After the expansion of its manufacturing
facilities in Asia, HTE noticed a reduction 20
3. £284 in product quality in the region. This
4. £275 18
seems to be one of the reasons for HTE‘s
profit margin decline. HTE analysts 16
predicted that the average profit margin in 14
Asia will drop by 25% in the home
Million of units
entertainment segment in 2015. Currently, 12
Question x / 23of HTE in the home
the profit margin
10
entertainment category is the same
across all regions. 8
6
HTE offers a 12-month warranty and
every faulty product returned costs the 4
company £50. This includes shipping, and 2
replacement of faulty parts. The
probability that a product manufactured in 0
North
Europe is faulty is 5%. This probability is Europe Asia Australia
America
10% in Asia, 4% in North America and 2%
2013 13,03 6,25 10,00 2,45
in Australia. The average price for the
home entertainment category in 2014 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.
Million of units
entertainment segment in 2015. Currently, 12
4. Expand manufacturing Question x / 23of HTE in the home
the profit margin
capacity further 10
entertainment category is the same
across all regions. 8
6
HTE offers a 12-month warranty and
every faulty product returned costs the 4
company £50. This includes shipping, and 2
replacement of faulty parts. The
probability that a product manufactured in 0
North
Europe is faulty is 5%. This probability is Europe Asia Australia
America
10% in Asia, 4% in North America and 2%
2013 13,03 6,25 10,00 2,45
in Australia. The average price for the
home entertainment category in 2014 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.
Million of units
entertainment segment in 2015. Currently, 12
was the main reason for Question x / 23of HTE in the home
the profit margin
the sales decline in the 10
entertainment category is the same
region. across all regions. 8
6
HTE offers a 12-month warranty and
every faulty product returned costs the 4
company £50. This includes shipping, and 2
replacement of faulty parts. The
probability that a product manufactured in 0
North
Europe is faulty is 5%. This probability is Europe Asia Australia
America
10% in Asia, 4% in North America and 2%
2013 13,03 6,25 10,00 2,45
in Australia. The average price for the
home entertainment category in 2014 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.
1. £780M
2. £360M The home entertainment segment is the
biggest one for HTE. Therefore, the Average Market
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)
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 2014 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 40% 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.
1. £240m
HTE has concluded that its profitability 35
2. £680m
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 2015 as 2014 5
a result of the new marketing campaign. 2015 -
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 2015 as 2014 5
a result of the new marketing campaign. 2015 -
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 2015 as 2014 5
a result of the new marketing campaign. 2015 -
Question 20 Doc 7
Assuming that HTE’s decline
in online sales follows the
same trend from 2012, 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
business. 9
two companies in 2018?
HTE‘s market analysts identified that the 8
1. £7bn competition grew its online sales rapidly, 7
2. £8bn while HTE‘s online sales declined.
3. £9bn Additionally, the profit margins of each of 6
Question x / 23in the online business
HTE‘s competitors
Yosi
HTE *
Electronic
£ 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. Sonic
2 Sound
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 2011 2012 2013 2014 2015 *
with a targeted payback period of 2 years.
* Predictions for 2015 take into account the
acquisition of Sonic Labs by HTE.
Question 21 Doc 7
Which company generated the
highest profits in online sales
in 2014?
Online business
£ bn
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. Sonic
2 Sound
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 2011 2012 2013 2014 2015 *
with a targeted payback period of 2 years.
* Predictions for 2015 take into account the
acquisition of Sonic Labs by HTE.
Question 22 Doc 7
Which of the following
statements CANNOT be
concluded, based on the
Online business
information given?
Underperforming business Competitive online sales
1. If HTE had acquired Sonic
Labs in 2013, then it
would have had the Another reason for HTE‘s profitability 10
decline seems to be linked to its online QPN
highest online sales in
business. 9
that year
2. If HTE does not acquire HTE‘s market analysts identified that the 8
Sonic Labs, its online competition grew its online sales rapidly, 7
sales would go down in while HTE‘s online sales declined.
2015 Additionally, the profit margins of each of 6
Question x / 23in the online business
HTE‘s competitors
Yosi
HTE *
Electronic
£ bn
3. If Sonic Labs is not is equal to their respective profit margin in 5
acquired by HTE, it would the home entertainment segment while
4
have more online sales HTE‘s profit margin in online sales is half
than HTE by 2018 of its overall profit margin. This is due to 3
Peach
4. If Yosi Electronics had the inefficiency of HTE’s delivery system. Sonic
2 Sound
acquired Sonic Labs in Labs
In an effort to increase its online sales,
2014, then it would have 1
HTE has decided to restructure its online
had the highest online business from the ground up. For this 0
sales for that year purpose, they set aside a £75M budget 2011 2012 2013 2014 2015 *
with a targeted payback period of 2 years.
* Predictions for 2015 take into account the
acquisition of Sonic Labs by HTE.
Question 23 Doc 7
What market share does HTE
need to capture in 2016, in
order to achieve the targeted
Online business
payback period, assuming that
the market size in 2016 is the Underperforming business Competitive online sales
same as in 2014 and that
HTE’s online sales in 2015
meet the prediction given in Another reason for HTE‘s profitability 10
decline seems to be linked to its online QPN
the chart?
business. 9
£ bn
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. Sonic
2 Sound
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 2011 2012 2013 2014 2015 *
with a targeted payback period of 2 years.
* Predictions for 2015 take into account the
acquisition of Sonic Labs by HTE.
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:
Question 3 Question 4
Correct answer: 2 Correct answer: 1
QPN is the second last profitable competitor. QPN’s Cost efficiency can be defined as the cost of
profit margin in the home entertainment category is manufacturing per device.
15% and HTE‘s 20% (calculated in Q1).
To calculate the cost of manufacturing per device in
The percentage difference can be calculated as each region, you should first calculate the total cost in
follows: (0.2-0.15)/0.15 = 33% a given region as: total cost x percentage share of
total costs for that region, and then divide by the
Therefore answer 2 is the correct answer. number of devices produced in that region.
Question 5 Question 6
Correct answer: 2 Correct answer: 3
1. Wrong. We only have information about the labour Europe: 62.50 M devices
cost for HTE in Australia. Therefore we can not Segment A Europe: 25.00 M devices – 40% in home
conclude that the labour cost in Australia is in entertainment
general higher than any other region.
2. Correct. HTE Australia can’t take advantage of Revenues A: £15.00bn – from Doc 1
economies of scale due to low manufacturing
volumes. Therefore the raw materials cost is Revenues A Europe: £9.60bn - 64% of total
higher compared to other regions.
3. Wrong. There is not enough information to Profit A Europe: £1.92b - 20% profit margin
conclude to this statement. Also, small companies
tend to have very high overheads. Cost A Europe: Revenues – Profit = £7.68bn
4. Wrong. Similar to Answer 1 we only have
information about raw materials costs for HTE in Cost per device Europe: Cost A Europe / # of devices
Australia and not for all the companies in Australia. = £307.20
Question 7 Question 8
Correct answer: 2 Correct answer: 1
1. Wrong. Europe’s revenue in home entertainment We know that the price per device in Asia is £360 for
sector is 64% of total revenue which is 4 times the home entertainment category and that the profit
higher than the revenue of Asia (16%). The total margin dropped by 25%.
manufacturing cost for Europe is 34% which is
less than double of the manufacturing cost of Asia Profit Margin (2015) = 20% x 0.75 = 15%
(25%).
2. Correct. Australia is the region with the lowest total Profit Margin = (Revenues – Cost) / Revenues =
manufacturing cost (12%) and it also has the (Price – Cost per device) / Price =>
lowest revenues in the home entertainment sector
(8%). Cost per device = Price - Price x Profit Margin = £306
3. Wrong. Australia has low overhead costs but it
also has low revenues. Therefore answer 1 is the correct answer.
4. Wrong. North America and Asia have very similar
manufacturing cost distribution profiles but they
don’t have the same revenues.
Question 9 Question 10
Correct answer: 4 Correct answer: 3
1. Wrong. Improved product quality will prevent a 1. Wrong. Prices in North America are higher than
further decline in profit margin. those in Australia and so does the probability of a
2. Wrong. Increasing the training of the employees product being faulty.
could possibly lead in less faults during the 2. Wrong. We only have information about the home
manufacturing process and therefore improved entertainment category and not HTE as a whole in
product quality which will prevent a further decline North America.
in profit margin. 3. Correct. Looking at the data in the graph we can
3. Wrong. Streamlining the manufacturing process calculate that HTE sales in home entertainment in
across all regions will help reduce the cost of Europe increase by 20% every year.
manufacturing and therefore prevent a further 4. Wrong. Product quality might decrease sales
profit margin decline. based on the information we have in the document
4. Correct. The reduction in product quality that has but we do not know if it is the main reason for the
lead to a decrease in profitability seems to be sales decline in Asia.
linked to an increase in production capacity in
Asia. As a consequence, increasing capacity is
least likely to improve profit margin.
Question 11 Question 12
Correct answer: 2 Correct answer: 2
The key here is to first write down the formula that The price of TVs in Europe (£800) is 40% higher than
defines HTE’s break even point in Asia. Therefore the price of TVs in Asia is:
£800 = Price in Asia x 1.4 => Price in Asia = £571.43
# of units to break even x price
= fixed cost + # of units to break even x variable cost The average price in the home entertainment
category in Asia is £360 so the difference is:
The unknowns in the above formula are the fixed and
variable costs. Fixed costs are 40% of revenues (£571.43 - £360) / £360 = 211.43 / 360 = 0.59 or 59%
according to the data. Revenues therefore need to be
calculated first. Therefore answer 2 is the correct answer.
Revenues
= # of TVs sold x price
= market share x market size x price
= 2M x 40% x £800 = £640M
Fixed costs
= 40% x £640M = £256M
Therefore:
Variable costs
= (400,000 x £800 - £256,000,000) / 400,000
= £160
Question 13 Question 14
Correct answer: 2 Correct answer: 2
The profit margin in the home entertainment category The following formula defines the break even point:
for HTE has been calculated in question 1 and it is
20%. Acquisition cost
= (Annual Revenues – Annual Losses) x # of years x
From Doc 2 the revenues of the home entertainment Probability of success
category for North America in 2014 are 12% of the
total revenues of this segment. Total revenues of the Each element can then be calculated separately:
home entertainment category are given in Doc 1 • Annual Revenues = 500 x £4,080 = £2,040,000
(15bn). • HTE is losing one customer for every ten new
customers therefore the losses are:
Therefore revenues in North America Annual Losses = (500/10) x £800 = £40,000
= 15bn x 12% = £1.8bn • Probability of success: 1-10% = 90%
• Acquisition price = £5.4M
The profit in the home entertainment category for
North America is then; £1.8bn x 20% = £0.36bn or The different values can then be used in the formula:
360M. £2M x 90% x # of years = £5.4M
Doc 1 mentions that in North America the home The number of years is therefore 3 years or 36
entertainment category is limited to TVs only. months.
Therefore the profit in the TV business for North
America is £360 and answer 2 is the correct answer. Answer 2 is therefore the correct answer.
Question 15 Question 16
Correct answer: 2 Correct answer: 1
Yosi Electronics profit in 2014 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 2014 in the TV
business are: £175M / 25% = £700M In order for HTE to increase its revenue by £500 the
price of the app should be £500 / 250 = £2
The additional revenues from the acquisition of Sonic
Labs in 2015 will be: 500 x £4080 x 90% = £1.83M Therefore answer 1 is the correct answer.
Note that here we need again to include the
probability of the new TV failing the safety
certification.
Question 17 Question 18
Correct answer: 3 Correct answers: 4
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 answers 4 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
Question 19 Question 20
Correct answer: 4 Correct answer: 2
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 2014 2015 2016 2017 2018
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 2015 should not
Therefore answer 4 is the correct answer. take into account the Sonic Lab acquisition.
Question 21 Question 22
Correct answer: 2 Correct answer: 2, 3
The profit margin of all competitors in their online 1. Wrong. This statement CAN be concluded since
business is the same with their profit margin in the the combined online sales of Sonic Labs and HTE
home entertainment category which is given in Doc 1. in 2013 would have been £9bn (7+2) which is the
highest for that year.
HTE‘s profit margin in its online business is 15%/2= 2. Correct. We don’t have enough evidence to predict
7.5% the online sales of HTE in 2015 therefore this
statement CANNOT be concluded.
Online sales profits in 20014: 3. Correct. Again we don’t have enough information
HTE: £6bn x 7.5% = £0.45bn to 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 4. Wrong. Similar to answer 1 the combined sales for
QPN: £9bn x 15% = £1.35 2014 would have been £9.5 (7+2.5) which is the
Sonic Labs: £2.5bn x 20% = £0.5bn 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.
Question 23
Correct answer: 3