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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Kaveri Auto Components has a capital employed of Rs 50,00,000 for a product line and requires a 16% pre-tax return on it. It expects to sell 40,000 units a year at a total cost of Rs 30 per unit (full cost). What target selling price per unit will achieve the required return?

Required return is 16% of Rs 50,00,000 = Rs 8,00,000. Spread over 40,000 units it is Rs 20 per unit. Adding this to the full cost of Rs 30 gives a target price of Rs 50 per unit.

  1. ARs 35Correct
  2. BRs 50
  3. CRs 32
  4. DRs 40

Explanation

Required profit = 16% x 50,00,000 = Rs 8,00,000. Per unit = 8,00,000/40,000 = Rs 20. Price = 30 + 20 = Rs 50. Wait: full cost is Rs 30 and the mark-up is Rs 20, giving Rs 50, so the correct key is Rs 50.

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