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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Himalaya Foods Pvt Ltd, Dehradun, manufactures packaged snacks. Its value chain analysis of a Rs 50 packet shows: procurement Rs 12, production Rs 14, packaging Rs 6, distribution Rs 9, marketing Rs 4 and after-sales Rs 1, total cost Rs 46. A competitor sells a similar packet at Rs 45 with a lower distribution cost. Management wants a cost leadership position by lowering the price to Rs 44 while retaining the existing Rs 4 margin per packet. What total cost per packet is required, and what is the saving needed from the present Rs 46?

At a price of Rs 44 and a retained margin of Rs 4, the cost must be Rs 40 per packet. The present cost is Rs 46, so Himalaya Foods must save Rs 6 per packet, for example by redesigning distribution or procurement activities.

  1. ARs 40 required; saving Rs 6Correct
  2. BRs 44 required; saving Rs 2
  3. CRs 42 required; saving Rs 4
  4. DRs 41 required; saving Rs 5

Explanation

Required cost = new price 44 - margin 4 = Rs 40. The saving needed = 46 - 40 = Rs 6. Option B ignores the retained margin and treats price as cost.

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