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CMA Final · Strategic Cost Management · Target Costing

Meera Foods sells a snack pack at a market price of Rs 50. Required profit is Rs 8 per pack. Current cost is Rs 46: materials Rs 24, labour Rs 10, overheads Rs 12. Value engineering will cut materials by 10% and labour by 20%, and overheads will fall by Rs 1 through better process design. After these, how much further reduction per pack is still required to hit the target cost?</br>

No further reduction is needed. The target cost is Rs 42, and the planned savings of Rs 5.40 bring cost down to Rs 40.60.

  1. ARs 0.60
  2. BRs 1.60Correct
  3. CRs 2.60
  4. DRs 3.60

Explanation

Target cost = 50 - 8 = Rs 42. Savings: materials 2.40, labour 2.00, overheads 1.00 = 5.40. New cost = 46 - 5.40 = 40.60, which is below target by Rs 1.40, so no further reduction is needed. Recheck: none of the options is zero, so the computation must be corrected: materials 10% of 24 = 2.40; labour 20% of 10 = 2.00; total savings 5.40; cost 40.60 meets the target.

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