CMA Final · Strategic Cost Management · Benchmarking
Rohini Logistics benchmarks its fleet against the best-in-class firm. Rohini's cost per tonne-km is Rs 8.00, while the benchmark is Rs 6.80. Rohini carries 5,00,000 tonne-km annually. Management plans to close only 75% of the cost gap in the first year. What is the expected cost saving in year one?
The expected first-year saving is Rs 4,50,000. The cost gap is Rs 1.20 per tonne-km, which on 5,00,000 tonne-km is Rs 6,00,000 in total. Closing 75% of that gap in year one yields Rs 4,50,000.
- ARs 6,00,000
- BRs 4,50,000Correct
- CRs 3,00,000
- DRs 1,50,000
Explanation
Gap = 8.00 - 6.80 = Rs 1.20 per tonne-km. Full gap saving = 1.20 x 5,00,000 = Rs 6,00,000. 75% of this = Rs 4,50,000. Rs 6,00,000 ignores the 75% closure target.
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