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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Meghdoot Appliances Pvt Ltd makes a water purifier whose full cost is Rs 1,600 per unit. The firm applies a cost-plus markup of 25% on full cost. A dealer then adds a 10% margin on his purchase price. What is the retail price at the dealer's end (before any taxes)?

The retail price is Rs 2,200. The manufacturer sells at full cost plus 25%, which is Rs 2,000, and the dealer then adds 10% on that purchase price, giving Rs 2,200. The margins compound rather than add.

  1. ARs 2,200Correct
  2. BRs 2,000
  3. CRs 2,100
  4. DRs 2,250

Explanation

Manufacturer's price = 1,600 x 1.25 = Rs 2,000. Dealer's price = 2,000 x 1.10 = Rs 2,200. Rs 2,000 ignores the dealer margin; Rs 2,250 wrongly adds 25% and 10% to get 35% on cost... actually 1,600 x 1.40 = 2,240, so it is not a valid result.

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