CMA Final · Strategic Cost Management · Benchmarking
Godavari Logistics has an on-time delivery rate of 84%, while the benchmark partner achieves 96%. Godavari handles 25,000 deliveries a year, and each late delivery costs Rs 400 in penalties and re-handling. If Godavari closes the gap fully, what is the annual cost saving?
The saving is Rs 12,00,000. The performance gap is 12 percentage points (96% minus 84%), which on 25,000 deliveries means 3,000 fewer late deliveries. At Rs 400 each, that gives Rs 12,00,000 saved annually.
- ARs 12,00,000Correct
- BRs 10,00,000
- CRs 8,40,000
- DRs 1,20,00,000
Explanation
The gap is 96% - 84% = 12 percentage points. Late deliveries avoided = 12% x 25,000 = 3,000. Saving = 3,000 x 400 = Rs 12,00,000. Rs 10,00,000 would wrongly use a relative gap of 12/96 = 12.5% less error, i.e. a different base.
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