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CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison

An inter-firm comparison body reports for a group of cement firms an average return on capital employed (ROCE) of 18%. Firm Y has a profit margin of 9% on sales and a capital turnover of 1.5 times. By how many percentage points is Firm Y's ROCE below the group average?

Firm Y's return on capital employed is 9 percent multiplied by 1.5, which is 13.5 percent. The group average is 18 percent, so Y falls short by 4.5 percentage points. The figure 13.5 is Y's own ratio, not the difference.

  1. A4.5Correct
  2. B3.0
  3. C13.5
  4. D6.0

Explanation

ROCE of Y = margin x turnover = 9% x 1.5 = 13.5%. The shortfall from 18% is 18 - 13.5 = 4.5 percentage points. The option 13.5 is Y's ROCE itself, not the gap.

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