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Operating leverage: the same sales growth, very different profit growth

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

Two companies in Singapore each have revenue of SGD 1 million (1,000 thousand) and profit of SGD 100 thousand. All figures below are in SGD thousands. Company A has variable costs of 200 and fixed costs of 700. Company B has variable costs of 700 and fixed costs of 200. Sales rise 10 percent at both. What happens to profit?

2. Answers to clarifying questions

This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.

3. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

New profit = new revenue minus new variable costs minus the same fixed costs
- Revenue and variable costs both rise 10 percent
- Fixed costs do not change

4. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Company A today
What a strong candidate does: Revenue 1,000 minus variable 200 minus fixed 700.
Profit A today (SGD thousands): 1,000 - 200 - 700 = 100
Step 2: Company A after growth
What a strong candidate does: Revenue 1,100, variable costs 220, fixed costs still 700.
Profit A after (SGD thousands): 1,100 - 220 - 700 = 180
Step 3: Company A profit growth
What a strong candidate does: Profit went from 100 to 180.
Profit growth A (percent): (180 - 100) ÷ 100 × 100 = 80
Step 4: Company B after growth
What a strong candidate does: Revenue 1,100, variable costs 770, fixed costs still 200.
Profit B after (SGD thousands): 1,100 - 770 - 200 = 130
Step 5: Company B profit growth
What a strong candidate does: Profit went from 100 to 130.
Profit growth B (percent): (130 - 100) ÷ 100 × 100 = 30

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

The answer is that Company A's profit grows much faster: the same 10 percent sales growth lifts it 80 percent, to SGD 180 thousand, against 30 percent, to 130 thousand, at Company B. The reason is operating leverage: Company A has fixed costs of 700 and variable costs of only 200, so most extra sales fall straight to profit. This means the risk runs in reverse too: if sales fall, Company A's profit falls much faster. As a next step, check how stable each company's sales are before judging which cost structure is better.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.