CMA Final · Strategic Cost Management · Pricing Decisions and Strategies
Godavari Pumps Ltd quotes for a one-off export order of 2,000 units. Variable cost is Rs 150 per unit. Spare capacity exists. The order needs a special die costing Rs 40,000 (usable only for this order). Normal sales are not affected. The firm wants to earn a contribution of Rs 20 per unit over variable cost after recovering the die cost. What is the minimum quoted price per unit?
The die is an incremental cost, worth Rs 20 per unit over 2,000 units. Adding it to variable cost of Rs 150 and the desired Rs 20 margin gives Rs 190 per unit. Ignoring the die would give Rs 170, which is wrong.
- ARs 190Correct
- BRs 170
- CRs 150
- DRs 200
Explanation
Die cost per unit = 40,000/2,000 = Rs 20. Price = variable cost 150 + die 20 + required contribution 20 = Rs 190. Rs 170 omits the die cost, which is an incremental cost of this order.
Did you get it right without looking?
One question tells you little. A timed set on Pricing Decisions and Strategies shows your real accuracy, how long you take and where you lose marks.
More Pricing Decisions and Strategies questions
- Kaveri Auto Components has a capital employed of Rs 50,00,000 for a product line and requires a 16% pre-tax return on it. It expects to sell…
- Vistara Electronics Ltd. is launching a new gadget with a market penetration strategy. Which pricing approach is consistent with this strate…
- Sundaram Electronics sells a gadget with demand function Q = 1,000 - 5P, where P is price in rupees. Variable cost is Rs 40 per unit and fix…
- Which pricing strategy involves setting a high initial price for a new, innovative product and lowering it over time to capture consumers wi…
- Narmada Tools Ltd. has a product with variable cost ₹120 per unit and fixed cost ₹4,00,000 per year. At a price of ₹200 demand is 10,000 uni…
- Meghdoot Appliances Pvt Ltd makes a water purifier whose full cost is Rs 1,600 per unit. The firm applies a cost-plus markup of 25% on full …