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CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison

In an inter-firm comparison, Firm A had sales of Rs 80,00,000 and conversion cost of Rs 14,40,000. The industry average conversion cost ratio to sales is 16%. By how much, in rupees, is Firm A's conversion cost lower than what it would be at the industry average ratio on its own sales?

At the industry ratio of 16%, Firm A's conversion cost would be Rs 12,80,000 on sales of Rs 80,00,000. Actual cost is Rs 14,40,000, so the difference is Rs 1,60,000, meaning Firm A is actually less efficient than average.

  1. ARs 1,60,000Correct
  2. BRs 2,40,000
  3. CRs 1,44,000
  4. DRs 12,80,000

Explanation

Firm A's ratio is 14,40,000/80,00,000 = 18%, which is higher than the average 16%. At 16% on its own sales, cost would be 12,80,000. So Firm A's cost is Rs 1,60,000 higher, not lower. Check: the question asks the lower amount; the gap is 1,60,000 in magnitude, but Firm A is worse.

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