Background
The client operates castor manufacturing in West and East Germany. Profits have declined by 20% despite flat revenues over the past two years. The company serves three divisions: hospital bed, mop bucket, and chair manufacturers.
Key Findings:
Hospital bed division sales and profits have dropped by 10% and 30%, respectively.
Mop bucket and chair division sales increased by 10%, but their profits also dropped by 10%.
Labor costs are the major cost component and have significantly increased in formerly state-regulated East Germany.
Demand for hospital beds and castors in East Germany decreased due to healthcare system improvements.
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Proposed Analysis:
Investigate cost components—both fixed and variable costs—to pinpoint major issues. Explore an income statement or cost breakdown provided by the interviewer.
Conclusion
The steep increase in labor costs, particularly in East Germany, is a significant contributor to the decreased profits. The declining demand for hospital beds has further impacted the hospital bed division. Suggested actions might involve strategic cost management or realignment of production to optimize the business's profitability.
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