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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Bharat Gears Ltd. has a special order for 2,000 units from an export buyer. Normal selling price is ₹150, variable cost ₹90 per unit, and there is idle capacity so no fixed cost changes. A packing specification adds ₹5 per unit for this order. What is the minimum acceptable price for the whole order?

The minimum acceptable price is ₹1,90,000. With idle capacity and unchanged fixed costs, only incremental costs matter: variable cost of ₹90 plus ₹5 packing, which is ₹95 per unit, multiplied by 2,000 units. Omitting the packing cost would give an incorrect lower figure.

  1. A₹1,90,000Correct
  2. B₹1,80,000
  3. C₹2,00,000
  4. D₹3,00,000

Explanation

With idle capacity and fixed costs unchanged, the minimum price covers the relevant cost: variable cost 90 + special packing 5 = ₹95 per unit. For 2,000 units this is ₹1,90,000. ₹1,80,000 omits the packing cost, a missed incremental cost.

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