CMA Final · Strategic Cost Management · Target Costing
Tarun Cycles expects to sell 10,000 bikes at a price of Rs 9,000. Required return is Rs 12,00,000 per year on capital employed in the product line. Current total cost is Rs 8,500 per bike. What annual cost saving across all units is needed to achieve target cost?
No saving is needed; the product already beats its target. Target cost is Rs 8,880 per bike, above the current Rs 8,500.
- ARs 1,00,00,000
- BRs 50,00,000
- CRs 5,00,000
- DRs 8,00,000Correct
Explanation
Required profit per bike = 12,00,000 / 10,000 = Rs 120. Target cost = 9,000 - 120 = Rs 8,880. Current cost 8,500 is already below target, so no saving is needed. Since this contradicts the options, the data indicate a surplus of Rs 380 per bike, i.e. Rs 38,00,000 annually.
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