You have recently been appointed as the management accountant attached to the head office of the company with special responsibility of monitoring the performance of the companies within the group

You have recently been appointed as the management accountant attached to the head office of the company with special responsibility of monitoring the performance of the companies within the group. Each company is treated as an investment center and every month produces an operating statement for the group headquarters. Summaries of the statements for companies X and Y which make similar products selling at similar prices for the last month showed a typical situation. Extract from the company monthly operating statements. X                         Y GHS000               GHS000 Sales                                                        600                       370 Less variable cost                                    229                       208 Contribution                                             371                       162 Less controllable fixed overheads              65                         28 Controllable profit                                    306                       134 Less apportioned group costs                    226                      119 80                        15 Company Assets                                      GHS6.4M                  GHS0.9M Estimated return on capital employed (on annual basis)   15%                  20% Although both companies are earning more than the target return on capital of 12%, there is pressure of interest rates which means this rate must be increased soon and the board is concerned at the  relatively low return achieved by   X. REQUIRED i).Using common size ratios and other relevant information Compare and discuss the relative performance of the two companies as shown in the summarized statement. . ii). Redraft the operating statement using an alternative performance measurement to return on capital employed and interpret them against a background of rising interest iii). critically compare the use of return on capital employed and the alternative performance measure used in (ii) above to assess investment Centers.

-25-


Buy plagiarism free, original and professional custom paper online now at a cheaper price. Submit your order proudly with us



Essay Hope