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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Sundaram Foods Ltd makes a packaged snack with a full cost of Rs 80 per unit. The firm applies a cost-plus mark-up of 25% on full cost. A distributor asks for a special price that equals the full cost plus a 10% mark-up on selling price. What is the difference between the standard selling price and this special price?

The standard price is Rs 100 (80 x 1.25). A 10% mark-up on selling price means cost is 90% of price, so the special price is 80/0.9 = Rs 88.89. The difference is Rs 11.11. Applying 10% to cost would wrongly give Rs 88.

  1. ARs 100 versus Rs 88.89; difference Rs 11.11Correct
  2. BRs 100 versus Rs 88; difference Rs 12
  3. CRs 100 versus Rs 90; difference Rs 10
  4. DRs 105 versus Rs 88.89; difference Rs 16.11

Explanation

Standard price = 80 x 1.25 = Rs 100. A 10% mark-up on selling price means cost is 90% of price, so price = 80/0.90 = Rs 88.89. Difference = 100 - 88.89 = Rs 11.11. Option B wrongly adds 10% to cost (88) instead of treating it as a mark-up on price.

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