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CMA Final · Strategic Cost Management · Pricing Decisions and Strategies

Under target pricing, Pushpa Electronics expects a market price of ₹800 per unit for a new gadget and requires a profit margin of 20% on selling price. Current estimated cost is ₹700 per unit. What cost reduction per unit is required to meet the target?

Target cost equals market price minus required profit: ₹800 minus 20% of ₹800 (₹160) gives ₹640. Since the current cost is ₹700, the firm must cut ₹60 per unit to achieve the target.

  1. A₹60Correct
  2. B₹100
  3. C₹160
  4. D₹20

Explanation

Target profit = 20% x 800 = ₹160. Target cost = 800 - 160 = ₹640. Required reduction = 700 - 640 = ₹60. ₹100 ignores the profit requirement; ₹160 confuses profit with reduction.

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