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

Under an inter-firm comparison scheme, Firm A reports sales of ₹40,00,000 and operating profit of ₹6,00,000. Capital employed is ₹30,00,000. The industry average ratio of profit to capital employed is 15%. Firm A's return on capital employed is lower than the industry average by:

Firm A's ROCE is 6,00,000 divided by 30,00,000, which is 20%. Compared with the 15% industry average, the difference is 5 percentage points; the firm is actually above the average by that margin.

  1. A5 percentage pointsCorrect
  2. B15 percentage points
  3. C3 percentage points
  4. D1.5 percentage points

Explanation

ROCE = 6,00,000 / 30,00,000 = 20%. This is above the 15% industry average by 5 percentage points, so Firm A is higher rather than lower. Check: 15% of 30,00,000 = 4,50,000, and 6,00,000 is more than that. The question asks for the gap in magnitude, which is 5 points, but note the premise: it is actually higher.

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