CMA Final · Strategic Cost Management · Benchmarking
Asha Components Ltd processes 40,000 purchase orders a year at a total cost of Rs 32,00,000. The benchmark partner, a best-in-class firm, processes an order at Rs 55. If Asha reaches the benchmark cost per order, what annual saving results?
The annual saving is Rs 10,00,000. Asha's current cost is Rs 80 per order (32,00,000 divided by 40,000), against the benchmark of Rs 55. The gap of Rs 25 multiplied by 40,000 orders gives Rs 10,00,000.
- ARs 10,00,000
- BRs 9,00,000Correct
- CRs 22,00,000
- DRs 1,00,000
Explanation
Current cost per order = 32,00,000/40,000 = Rs 80. Gap = 80 - 55 = Rs 25. Annual saving = 25 x 40,000 = Rs 10,00,000. Check: benchmark total cost = 55 x 40,000 = 22,00,000; 32,00,000 - 22,00,000 = 10,00,000. The Rs 22,00,000 option is the benchmark cost, not the saving.
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