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CMA Final · Strategic Cost Management · Introduction to Strategic Cost Management

Mahalakshmi Foods Ltd sells packaged snacks. Its own value chain cost is Rs 40 per pack up to the point of handing over to distributors. Distributors incur Rs 12 per pack and retailers incur Rs 8 per pack, and the retail price is Rs 75. A strategic cost analysis looking at the whole industry value chain would compute the total chain cost and the chain margin as:

The total value chain cost is Rs 60 per pack (40 + 12 + 8), and with a retail price of Rs 75 the chain margin is Rs 15. Strategic cost analysis adds the costs of all participants, not only the firm's own cost.

  1. AChain cost Rs 60, chain margin Rs 15Correct
  2. BChain cost Rs 52, chain margin Rs 23
  3. CChain cost Rs 40, chain margin Rs 35
  4. DChain cost Rs 60, chain margin Rs 35

Explanation

Total chain cost = 40 + 12 + 8 = Rs 60. Chain margin = 75 - 60 = Rs 15. Rs 52 ignores the firm's cost portion (mistake: omitted 8 differently, 40+12), and Rs 40 considers only the firm's own cost.

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