Profitability diagnosis: volume grew, profit fell
A fictional manufacturer sold more units than planned yet missed its operating-profit budget. Reconcile the miss and communicate the decision without assigning unproven causes.
Original Finance Circle management-finance scenario. BCG’s case-preparation guidance is related reading; BCG did not supply or endorse this case.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Original Finance Circle management-finance scenario. BCG’s case-preparation guidance is related reading; BCG did not supply or endorse this case.
Which assumptions can I use without requesting more data?
CAD; one product. Units sold equal production, with no inventory, mix, FX, tax or financing effects. Use budget unit contribution for the volume effect, actual units for price and variable-cost effects. Positive effects increase profit.
What decision am I expected to support?
Action A raises price by 2 on all 11,000 units without volume loss. Action B sells 800 more units at actual contribution, but adds 5,000 fixed cost. Calculate each incremental profit and resulting total profit.
Build your structure
- Budget and actual unit economics
- Signed volume, price and cost bridge
- Recovery actions at incremental contribution
- Elasticity, capacity and implementation evidence
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- CAD; one product. Units sold equal production, with no inventory, mix, FX, tax or financing effects.
- Use budget unit contribution for the volume effect, actual units for price and variable-cost effects. Positive effects increase profit.
- Manager proposals are evaluated independently; do not combine them unless instructed.
Budget versus actual
| Driver | Budget | Actual |
|---|---|---|
| Units | 10,000 | 11,000 |
| Price / unit | 100 | 96 |
| Variable cost / unit | 60 | 63 |
| Fixed costs | 200,000 | 220,000 |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Calculate the operating result.
Calculate budget profit, actual profit and the signed variance actual minus budget.
What did higher volume contribute at budget economics?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- Budget profit
- 200,000 CAD
- Actual profit
- 143,000 CAD
- Profit variance
- -57,000 CAD
Work through the calculation
- Budget = 10,000 × (100 − 60) − 200,000 = 200,000.
- Actual = 11,000 × (96 − 63) − 220,000 = 143,000; variance = −57,000.
A strong concise response
My calculation shows that budget profit is 200,000 CAD; actual profit is 143,000 CAD; profit variance is -57,000 CAD. Higher unit volume does not guarantee higher profit when price, variable cost and fixed cost move adversely.
Answer the interviewer follow-up
What did higher volume contribute at budget economics?
At a budget contribution of 40 per unit, 1,000 additional units add 40,000 before the actual price, variable-cost and fixed-cost effects.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 3 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Calculate the operating result. States the supplied scope, timing and metric definitions before calculating.
Higher unit volume does not guarantee higher profit when price, variable cost and fixed cost move adversely. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Public context; Finance Circle’s scenario inputs are illustrative.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.