Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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). 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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Internal Auditing As A Career

Authors: Richa Yamini Goel

1st Edition

B09RMBWZ2L, 979-8412866512

More Books

Students also viewed these Accounting questions

Question

Describe ERP and how it can create efficiency within a business

Answered: 1 week ago

Question

design a simple disciplinary and grievance procedure.

Answered: 1 week ago