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.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
You have recently been appointed as the
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
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.
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