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

Meenakshi Appliances Ltd sells a mixer at ₹4,000, and its main rival sells a similar product at ₹3,600. The firm wants a 15% margin on selling price and uses a market-driven approach to set the cost at which the product must be made. Assuming it matches the rival's price, what is the maximum allowable cost per unit?

The maximum allowable cost is ₹3,060. The price is matched to the rival at ₹3,600, and a 15% margin on selling price is ₹540. Subtracting this margin from the price gives the target cost. Applying the margin on cost instead would wrongly give ₹3,130.

  1. A₹3,060Correct
  2. B₹3,130
  3. C₹3,400
  4. D₹3,600

Explanation

Matching the rival gives a price of ₹3,600. A 15% margin on selling price is ₹540, so allowable cost is 3,600 − 540 = ₹3,060. Option B wrongly applies the margin as 15% of cost (3,600/1.15 = ₹3,130). Option C uses the margin on the old price of ₹4,000.

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