b) 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 IS Company Assets GHS6.4M GHS0.9M Estimated return on capital employed (on annual basis) 15% 20% Although both companies are caming 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 retum 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 10 marks ii). Redraft the operating statement using an alternative performance measurement to return on capital employed and interpret them against a background of rising interest 5 marks 111) critically compare the use of return on capital employed and the alternative performance measure used in (ii) above to assess investment Centers 5 marks b) 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 IS Company Assets GHS6.4M GHS0.9M Estimated return on capital employed (on annual basis) 15% 20% Although both companies are caming 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 retum 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 10 marks ii). Redraft the operating statement using an alternative performance measurement to return on capital employed and interpret them against a background of rising interest 5 marks 111) critically compare the use of return on capital employed and the alternative performance measure used in (ii) above to assess investment Centers 5 marks
