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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

A firm's value chain analysis for FY shows: sales Rs 500 crore, cost of inbound logistics, operations and outbound logistics together Rs 340 crore, marketing and service Rs 60 crore, and support activities (HR, technology, procurement, infrastructure) Rs 40 crore. What is the margin as a percentage of sales, and what does it represent in Porter's value chain?

The margin is 12% of sales. Total activity costs are Rs 440 crore (340 + 60 + 40), leaving Rs 60 crore out of Rs 500 crore. In Porter's value chain, margin is the difference between the value created and the collective cost of performing all value activities.

  1. A12%, the margin between total value created and the total cost of performing value activitiesCorrect
  2. B20%, the margin between sales and primary activity cost only
  3. C8%, the margin after deducting support activities twice
  4. D88%, the share of cost in total value

Explanation

Total cost of all activities = 340 + 60 + 40 = 440. Margin = 500 - 440 = 60, which is 60/500 = 12%. Check: cost share 88% plus margin 12% = 100%. The 20% option ignores support activities (500-400=100 would be wrong because primary here is 400).

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