CMA Final · Strategic Cost Management · Pricing Decisions and Strategies
Kaveri Appliances Ltd. earns a target return of 20% on capital employed of ₹60,00,000 for a product line. It expects to sell 40,000 units, with total cost of ₹1,80,00,000 for that volume. What is the target selling price per unit under the return-on-investment pricing method?
The target price is ₹480 per unit. The required return is 20% of ₹60 lakh, which is ₹12 lakh. Adding this to total cost of ₹1.80 crore gives revenue of ₹1.92 crore, and dividing by 40,000 units gives ₹480.
- A₹450
- B₹480Correct
- C₹420
- D₹300
Explanation
Required profit = 20% × 60,00,000 = ₹12,00,000. Total revenue needed = 1,80,00,000 + 12,00,000 = ₹1,92,00,000. Price per unit = 1,92,00,000/40,000 = ₹480. Using only cost per unit (₹450) ignores the required return.
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