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CS Professional · Strategic Management and Corporate Finance · Competitive Positioning

A firm's value chain analysis shows that its sales revenue is ₹500 crore, total costs of primary and support activities are ₹440 crore, of which inbound logistics and operations account for ₹260 crore. What is the firm's margin, and what share of the total costs do inbound logistics and operations represent (rounded to one decimal)?

Margin is revenue minus total activity costs, ₹500 crore less ₹440 crore, which is ₹60 crore. Inbound logistics and operations of ₹260 crore form 260/440, about 59.1%, of total costs. Dividing by revenue instead would wrongly give 52%.

  1. AMargin ₹60 crore; 59.1% of total costsCorrect
  2. BMargin ₹60 crore; 52.0% of total costs
  3. CMargin ₹240 crore; 59.1% of total costs
  4. DMargin ₹60 crore; 11.9% of total costs

Explanation

In Porter's value chain, margin = value (revenue) minus total cost of activities = 500 - 440 = ₹60 crore. Share = 260/440 = 59.09%, about 59.1%. The 52.0% option wrongly divides by revenue (260/500), and ₹240 crore subtracts only the 260 from 500.

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