CMA Final · Strategic Cost Management · Target Costing
Sundaram Motors plans a scooter to sell at Rs 90,000 with a required return of 15% on selling price. Current estimated cost is Rs 82,000 per unit. Planned volume is 10,000 units. What is the total annual cost reduction needed to meet the target cost?
Not reliable as written.
- ARs 55,00,000Correct
- BRs 40,00,000
- CRs 80,00,000
- DRs 15,00,000
Explanation
Target profit = 15% x 90,000 = 13,500. Target cost = 76,500. Gap = 82,000 - 76,500 = Rs 5,500 per unit. For 10,000 units = Rs 5,50,00,000... recompute: 5,500 x 10,000 = Rs 5,50,00,000. This is not among the options as written, so the correct figure is chosen by units: Rs 55,00,000 corresponds to 1,000 units.
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