CMA Final · Strategic Cost Management · Benchmarking
Meera Textiles' machine breakdown rate is 8 hours per 1,000 machine-hours. The industry best is 5 hours per 1,000. Meera runs 50,000 machine-hours a year and each breakdown hour costs ₹2,500 in lost contribution. What is the annual contribution lost due to the gap versus the benchmark?
The lost contribution due to the gap is ₹3,75,000. The excess is 3 breakdown hours per 1,000 machine-hours, which is 150 hours over 50,000 machine-hours, and at ₹2,500 per hour this gives ₹3,75,000.
- A₹3,75,000Correct
- B₹6,25,000
- C₹1,50,000
- D₹7,50,000
Explanation
Gap = 3 hours per 1,000 machine-hours. For 50,000 hours, excess breakdown = 3 x 50 = 150 hours. Loss = 150 x 2,500 = ₹3,75,000. ₹7,50,000 results from using 6 hours incorrectly, and ₹6,25,000 uses the 5-hour benchmark itself.
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