You have recently been appointed as the management

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

Using common size ratios and other relevant information Compare and discuss the relative performance of the two companies as shown in the summarized statement.