CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison
In an inter-firm comparison scheme, Firm A has sales of Rs 80,00,000, and capital employed of Rs 50,00,000. Its profit before interest and tax is Rs 10,00,000. What are its profit margin and capital turnover ratio respectively?
Profit margin is 12.5 percent, being profit of Rs 10 lakh over sales of Rs 80 lakh. Capital turnover is 1.6 times, being sales of Rs 80 lakh over capital employed of Rs 50 lakh. Their product gives a 20 percent return on capital employed.
- A12.5% and 1.6 timesCorrect
- B20% and 0.625 times
- C12.5% and 0.625 times
- D16% and 1.6 times
Explanation
Profit margin = 10,00,000/80,00,000 = 12.5%. Capital turnover = 80,00,000/50,00,000 = 1.6 times. Check: 12.5% x 1.6 = 20% return on capital employed = 10,00,000/50,00,000. The option with 0.625 inverts the turnover ratio.
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