CMA Final · Strategic Cost Management · Benchmarking
Kaveri Auto Components has three plants. The cost per unit of processing a customer order is Rs 240 at Plant A, Rs 200 at Plant B and Rs 220 at Plant C. Plants A and C handle 30,000 and 20,000 orders a year respectively. Management adopts the best internal practice (Plant B) as the benchmark for both A and C. What is the annual saving if A and C reach the benchmark cost?
The annual saving is Rs 16,00,000. Plant A saves Rs 40 per order on 30,000 orders, giving Rs 12,00,000, and Plant C saves Rs 20 per order on 20,000 orders, giving Rs 4,00,000. Both are measured against Plant B's benchmark cost of Rs 200.
- ARs 16,00,000Correct
- BRs 12,00,000
- CRs 10,00,000
- DRs 20,00,000
Explanation
Plant A saving = (240-200) x 30,000 = Rs 12,00,000. Plant C saving = (220-200) x 20,000 = Rs 4,00,000. Total = Rs 16,00,000. Rs 12,00,000 counts only Plant A, which is the missed-plant mistake.
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