CMA Final · Strategic Cost Management · Target Costing
Tara Textiles has a product with a market price of Rs 500 and a required profit of Rs 100 per unit. Present cost is Rs 450 made up of materials Rs 250, labour Rs 120 and overheads Rs 80. Management decides the cost gap will be closed with materials bearing 60% of the reduction, labour 30% and overheads the balance. Which is the revised labour cost per unit?
Revised labour cost is Rs 105 per unit. Target cost is Rs 500 minus Rs 100, i.e. Rs 400, so the gap against the Rs 450 cost is Rs 50. Labour absorbs 30% of this, Rs 15, reducing labour from Rs 120 to Rs 105.
- ARs 108
- BRs 114Correct
- CRs 105
- DRs 117
Explanation
Target cost = 500 - 100 = Rs 400. Gap = 450 - 400 = Rs 50. Labour bears 30% x 50 = Rs 15, so revised labour = 120 - 15 = Rs 105. Check: materials 250-30 = 220, overheads 80-5 = 75, total 220+105+75 = 400. So the correct figure is Rs 105; option Rs 114 is wrong.
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