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CS Professional · Strategic Management and Corporate Finance · Managing the Multi-Business Firm and Analyzing Strategic Edge

Kaveri Appliances has activity costs per unit: inbound logistics Rs 40, operations Rs 220, outbound logistics Rs 60, marketing and sales Rs 80, service Rs 30, and support activities allocated Rs 70. Buyers pay Rs 560 per unit. What is the margin per unit, and which cost share is largest?

Margin is Rs 60 per unit because total activity cost including support is Rs 500 against the Rs 560 value buyers pay. Operations at Rs 220 is the largest cost component. Excluding support costs would wrongly give Rs 130.

  1. AMargin Rs 60; operations is the largest shareCorrect
  2. BMargin Rs 130; operations is the largest share
  3. CMargin Rs 60; marketing and sales is the largest share
  4. DMargin Rs 130; support activities are the largest share

Explanation

Total cost = 40+220+60+80+30+70 = 500. Margin = 560-500 = 60. Check: 500+60 = 560. Operations at 220 is the largest item. Rs 130 arises by omitting support costs (430 cost, 560-430), which wrongly ignores allocated support activities.

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