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CMA Final · Strategic Cost Management · Uniform Costing and Inter-firm Comparison

Three firms in an inter-firm comparison scheme report the following (₹ lakh): Firm X: sales 120, capital employed 60, profit 12. Firm Y: sales 90, capital employed 30, profit 9. Firm Z: sales 100, capital employed 50, profit 15. Which statement is correct?

ROCE is 20% for X, 30% for Y and 30% for Z, so Z is joint highest. Capital turnover is 2.0 for X, 3.0 for Y and 2.0 for Z, so Y has the highest turnover. Only the first option fits these figures.

  1. AZ has the highest ROCE, and Y has the highest capital turnoverCorrect
  2. BX has the highest ROCE, and Z has the highest capital turnover
  3. CY has the highest ROCE, and X has the highest capital turnover
  4. DZ has the highest ROCE, and X has the highest capital turnover

Explanation

ROCE: X = 12/60 = 20%, Y = 9/30 = 30%, Z = 15/50 = 30%. Y and Z both have 30%, so compute more precisely: Y = 30.0% and Z = 30.0%, a tie. Capital turnover: X = 2.0, Y = 3.0, Z = 2.0, so Y is highest. Since Z's margin is 15% against Y's 10%, but Y's turnover is higher, the ROCE is tied and Z is level-highest; the option naming Z as highest (joint) with Y highest turnover is the only one consistent with the data.

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