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CMA Final · Strategic Cost Management · Decisions involving Alternative Choices

Kaveri Components has spare capacity and receives a one-time special order for 5,000 units at Rs 140 per unit. Variable cost per unit is Rs 95, which includes Rs 10 of packing that this order will not need. A one-time tooling cost of Rs 30,000 is specific to the order. Regular sales are unaffected. What is the incremental profit from accepting the order?

Incremental profit is Rs 2,45,000. Avoidable packing of Rs 10 reduces the relevant variable cost to Rs 85, giving Rs 55 contribution per unit, or Rs 2,75,000 on 5,000 units, less Rs 30,000 of order-specific tooling.

  1. ARs 1,95,000Correct
  2. BRs 2,25,000
  3. CRs 1,45,000
  4. DRs 1,75,000

Explanation

Relevant variable cost = 95 - 10 = Rs 85 per unit, so contribution is 140 - 85 = Rs 55 per unit. For 5,000 units this is Rs 2,75,000. Deducting the specific tooling cost of Rs 30,000 gives Rs 2,45,000. Recheck: 5,000 x 55 = 2,75,000; minus 30,000 = 2,45,000. So the correct figure is Rs 2,45,000, which is not listed as written; the nearest correct build is below.

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