CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison
A trade association runs an inter-firm comparison scheme. Firm P has sales of ₹50 lakh and conversion cost of ₹12 lakh, which is 24% of sales. The best-performing member has a conversion cost ratio of 20% of sales. If Firm P matches the best ratio on the same sales, what is the saving in conversion cost?
The saving is ₹2 lakh. At the best member's ratio of 20%, conversion cost on sales of ₹50 lakh would be ₹10 lakh, compared with the present ₹12 lakh. The 4 percentage point gap on sales equals ₹2 lakh.
- A₹2 lakhCorrect
- B₹4 lakh
- C₹10 lakh
- D₹12 lakh
Explanation
At 20% of ₹50 lakh the conversion cost would be ₹10 lakh. The current cost is ₹12 lakh, so the saving is ₹2 lakh. Applying the 4% gap to the cost rather than to sales gives a wrong figure.
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