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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Sagar Foods has spare capacity and receives a one-time export order for 2,000 units. Variable cost is Rs 45 per unit, regular selling price is Rs 80, and fixed cost allocated is Rs 20 per unit. Incremental packing cost for the order is Rs 6,000 in total. What is the minimum acceptable price per unit for the order to avoid reducing profit?

The minimum price is Rs 48 per unit. With spare capacity only incremental costs matter: variable cost of Rs 45 plus special packing of Rs 3 per unit (Rs 6,000 over 2,000 units). Allocated fixed costs are not relevant.

  1. ARs 65
  2. BRs 45
  3. CRs 48Correct
  4. DRs 68

Explanation

Relevant costs are variable cost 45 x 2,000 = Rs 90,000 plus packing Rs 6,000 = Rs 96,000. Per unit = 96,000/2,000 = Rs 48. Rs 65 wrongly includes allocated fixed cost, which is unavoidable.

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