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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 ₹8,00,000, cost of goods sold of ₹6,00,000 and capital employed of ₹10,00,000. The industry average ratios circulated by the coordinating body are gross profit to sales 30% and return on capital employed (gross profit basis) 24%. What is Firm A's gross profit to sales ratio and its ROCE on a gross profit basis, and how does it compare with the industry average?

Firm A earns gross profit of ₹2,00,000, giving a gross profit ratio of 25% on sales and 20% on capital employed. Both are lower than the industry averages of 30% and 24%, so Firm A is below average on both measures.

  1. A25% and 20%; both below the averageCorrect
  2. B25% and 20%; both above the average
  3. C33.33% and 20%; ratio above, ROCE below
  4. D25% and 80%; ratio below, ROCE above

Explanation

Gross profit = 8,00,000 - 6,00,000 = 2,00,000. GP/Sales = 2,00,000/8,00,000 = 25%, below 30%. ROCE = 2,00,000/10,00,000 = 20%, below 24%. The 33.33% option uses cost as the base instead of sales.

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