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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Kaveri Appliances wants a 20% return on capital employed of Rs 15,00,000 for a product line. Annual volume is 30,000 units with total cost of Rs 40,00,000. What is the target selling price per unit under the return-on-capital-employed pricing method?

The target price is Rs 143.33 per unit. Required return is 20% of Rs 15,00,000, which is Rs 3,00,000. Adding this to total cost of Rs 40,00,000 gives revenue of Rs 43,00,000, divided by 30,000 units. Using cost alone gives Rs 133.33, which ignores the return.

  1. ARs 133.33
  2. BRs 143.33Correct
  3. CRs 153.33
  4. DRs 100.00

Explanation

Required return = 20% x 15,00,000 = Rs 3,00,000. Total revenue needed = 40,00,000 + 3,00,000 = Rs 43,00,000. Price = 43,00,000 / 30,000 = Rs 143.33. Rs 133.33 is just the cost per unit (40,00,000/30,000) with no return added.

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