MAC4863/2018

Questions for Assignment 4 for

2018
Enterprise Strategy
MAC 4863

Year Module

Department of Management Accounting

IMPORTANT INFORMATION:
Please activate your myUnisa and myLife email addresses and make sure
that you have regular access to the myUnisa module site.

Note: This is an online module and therefore it is available on myUnisa. However, in

order to support you in your learning process, you will also receive some study material
in printed format.

Define tomorrow
Open Rubric
 CONTENTS

 ASSIGNMENT 04: (OPTIONAL/SELF ASSESSMENT ASSIGNMENT) 

Due date: 20 August 2018

Unique Number: 598445

THIS ASSIGNMENT CONTAINS OLD ASSIGNMENT QUESTIONS, OLD CIMA REVISION

QUESTIONS AND PREVIOUS EXAM QUESTIONS. THIS ASSIGNMENT DOES NOT CONTRIBUTE
TO YOUR YEAR MARK. THIS ASSIGNMENT COVERS THE WHOLE SYLLABUS. TRY DOING THE
QUESTIONS UNDER EXAM CONDITIONS.

Question 1 (32 marks)

A transport authority in the greater Eastern Cape, is committed to the provision of rural
passenger transport services in an area between two large cities, namely Port Elizabeth and
East London. It has received tenders from various operators they are as follows:

Bay Academy

Offers to operate a limited stop service between the two main cities in the authority’s area.
Buses would operate at hourly intervals from 6 am until 8 pm on condition that the authority
would authorise no other operator to service this route or any part of it. Bay Academy also
requires that the district councils would grant the required permissions to allow on-board
catering.

African Juventus

Offers to operate social service vehicles for physically challenged passenger and others
between the urban areas. Services would operate half-hourly from 5:30 am to 11 pm at a cost
to the authority of R50 000 per week for the service. All fares would go to the authority. It is
estimated that the total fare income could eventually amount to R30 000 per week but would
initially be between R10 000 and R19 000 per week. Six months’ notice of termination would
be required from the authority or the operator, should it be found that some other service is
more appropriate to traveler’s needs.

Tornado

Proposes to operate a dial-a-bus rural service (a service by which intending passengers can
telephone for a bus) Travelers from within the rural area between the two cities would be able
to make use of these out-of-town services to and from either centre at a reasonable cost. The
authority would need to subsidise the cost of this service by regular weekly payments of R15
000 and all fare income would be retained by Tornado.

2
 MAC4863/2018

Required:

(a) Discuss the criteria which should be applied to evaluate the three proposals, taking
into account the authority’s need to seek out the best value for money. (12 marks)

(b) Discuss how such an authority can quantify the value of such a public passenger
transport facility to a community. (10 marks)

(c) Describe and assess other sources of funding that might become available for the
successful operation of the rural passenger transport facility other than revenue
earned from passenger fares and public funds. (10 marks)

[Total 32 marks]

(CIMA adapted)

Question 2 ( 25 marks)

NNN plc, a transport company, has recently experienced a number of problems and trading
conditions have become difficult in its business. NNN plc has invested very little recently in
replacement vehicles, buildings and driver recruitment and training. As a result, its operational
performance has declined and its unit costs per mile have risen to uncompetitive levels. Its
financial report for the year ended 31 March 2011 was subject to a qualified audit opinion
because the external auditors had serious concerns about NNN plc’s ability to continue in
business. The auditors had identified a number of causes for concern, namely:

Revenue: some customers paid by cash but this was not always recorded and the auditors felt
that the declared revenue did not fully represent the actual revenue.

Cash: there were substantial discrepancies. The auditors identified a possible shortfall of
£1,000,000 but they were unsure whether this was due to criminal activity or inadequate cash
accounting.

Criminal activities: NNN plc employs 210 people. Following a police investigation in 2010,
two directors, one manager and six drivers were prosecuted for people smuggling whilst using
NNN plc’s equipment. All nine employees were found guilty and sent to prison. During the trial
of these employees the judge commented: ‘There appears to have been a culture of criminality
within NNN’. On 1 February 2011 NNN plc was fined £2,000,000 because of the actions of
these employees.

The auditors noted that seven of the nine employees who started their employment with NNN
plc in 2009 had not been subject to background checks or required to produce references. Two
of these seven employees had criminal records. NNN plc does not have an internal audit
department or an internal security department.

Financial results: although NNN plc had forecast a profit of £5,000,000 for year ending 31
March 2011, the actual result was a loss of £5,000,000.

In September 2011, NNN plc’s bankers appointed a receiver and on 1 October 2011 NNN plc
was sold to a venture capitalist, WGG. WGG plans to sell NNN plc for a profit by the end of
2013, but in order to do this NNN plc will have to satisfy the following conditions. It must

3
● have an unqualified audit report
● be making a profit
● not be engaged in any criminal activities
● have introduced an ethical code

Required
(a) Recommend the changes required to be made so that NNN plc satisfies the first
three conditions set by WGG. Your answer should make recommendations under
the following headings:
• Accountancy related changes
• Performance related changes
• Organisational related changes

(16 marks)

(b) Recommend, with reasons, THREE principles that should be contained within an
ethical code for NNN plc.
(9 marks)

[Total 25 marks]
(CIMA revision question)

Question 3 (30 marks)

A well known perfume house, Tuberose attains worldwide sales for its globally branded
products. Its products consist mainly of deodorants, perfume, after shave lotions, and body
washes for both men and
women.

In carrying out an analysis of its competitive environment, the Marketing director has applied
Porter’s five force model and analysed the factors that affect Tuberose under each of the
following headings:

 Threat of entry: Little threat as although major competitors do exist, the size of
Tuberose presents a large entry barrier.
 Power of buyers: This is very important as the customers globally have ample choice
from different competitor’s products.
 Power of suppliers: Little threat as most suppliers of materials are small scale and
Tuberose could easily source its raw materials from other suppliers if necessary. Labour
is relatively cheap in Tuberose production facilities which are mainly situated in
developing countries.
 Substitute products: There are many alternative products offered by competitors, but
the Marketing director feels there is little by way of substitute for Tuberose’s products,
and therefore this factor poses little threat.
 Rivalry among competitors: There is strong competition in the perfume industry with
new products and smells being constantly developed, therefore this is a major threat.

The Marketing director is reasonably confident that he has judged the impact of these
competitive forces correctly as they apply to Tuberose. However he would like some re-
assurance of this. He has asked you as the Management Accountant to provide some
4
 MAC4863/2018

appropriate performance indicators by which the strength of the five competitive forces as
applied to Tuberose could be judged.

Required:

Recommend to the Marketing director suitable performance indicators which could be used to
judge the strength of the five competitive forces as they apply to Tuberose.
Discuss why you consider your recommendations to be appropriate.
Include in your discussion whether you agree or not with the Marketing directors judgement
regarding the impact of each force on Tuberose.
[Total 30 marks]

(CIMA – adapted)

Question 4 (25 marks)

PART A

Fusion manufactures running shoes, it has three divisions. Each of these divisions develop and
produce running shoes. The Life division produces running shoes that can be sold to the
general public through retail stores. The Elite division produces running shoes for the elite
sports person, this division works together with the individual sports person to develop a shoe
specifically for their needs. The Fusion division produces fashionable cross trainer shoes that
are not meant to train in but more for casual wear.
Fusion has built a global reputation for running shoe design and quality. The Elite division has
not been performing well for some time now, and the sales in high end running shoes produced
by the Life division have dropped. Unfortunately the market for expensive high end running
shoes is changing. Exchange rate movements and increased production costs have also made
Fusion less competitive, and its rivals are rapidly catching up in terms of running shoe
technology and quality. As a result, the latest annual reports show that turnover is down and
margins have reduced that the organisation is just barely breaking even.
You as the Management Accountant have just attended a strategy meeting at Fusion in which:
Manager A argued that the Life Division’s strategy was wrong.
Manager B claimed that the major problem had been the failure to properly implement functional
strategies.

Required:
For the benefit of all the managers present at the meeting the CEO has asked you to explain
the following:

The differences between corporate level strategy, business level strategy and functional level
strategy for Fusion.
(12 marks)

5
PART B

Thabang is looking for finance in order to open a chain of yoghurt ice cream stores. Despite
the competition in this sector having undertaken market research amongst his target market,
Thabang is convinced that he can succeed with his yoghurt ice cream stores.
He is currently in the process of putting together a business plan which will outline his strategy
to enter the market place. Having recently attended a workshop on what to include in a
business plan, Thabang remembers that he will need to determine what the critical success
factors (CSFs) for his business are, but he is confused about how these differ from core
competences.

Required:

i) Explain why it important for Thabang to determine the CSFs as part of the
development of his strategy and how they differ from core competences.
(8 marks)

ii) Identify what the CSFs might be for Thabang’s chain of ice cream stores. (5 marks)

[Total 25 marks]

(CIMA – adapted)

Question 5 (25 marks)

Torque is an organisation that develops high performance engines for the motor industry. It was
founded seven years ago by three mechanical engineers that studied together at university.
The organisation employs 10 other engineers. All of these employees are receiving relatively
low salaries but participate in a share option scheme. The means that when Torque is
successfully floated on the stock exchange they will receive shares in the company.
Torque currently has a number of new, innovative engines in development. Specially engines
that not harmful to the environment and are fuel efficient, for example electric drive motors.
Torque has to invest a significant amount of resources into the development of each potential
engine, whether they are successfully accepted by the car manufacturers or not. Currently, it
has 12 new engine types in development, a number of which may not be successful when
tested by the car manufacturers. Due to the speculative nature of the industry, companies such
as Torque are unable to obtain bank loans on commercial terms.
Torque is funded by an exclusive arrangement with a venture capital company. However, there
is only sufficient cash in place to maintain the present level of activity for a further nine months.
The venture capital company owns 15% of the equity of the organisation. The rest is owned by
the three founders. It has always been the intention of the venture capital company and the
founders that, once the organisation has a sufficient number of engines in production and on
the market, the organisation would be floated on the stock exchange. This is expected to
happen in five years’ time.
Recently there have been a number of options available to Torque which might solve its cash
flow problems. The three founders have identified the following options:

6
 MAC4863/2018

1. The venture capital company has suggested that it will guarantee the cash flow until the
first engine is successfully launched in commercial quantities. However, it would expect
its equity holding to rise to 60% once this offer is accepted.
2. A large car manufacture has offered to buy Torque outright and retain the services of the
three founders (in research roles) and a few of the staff.

3. Another engine development organisation has offered to enter into a merger with Torque.
This organisation has also been in existence for seven years and has one engine which
will be launched in six months. However, of the four other potential engines it has in
development none are likely to be commercially viable for 5 years. This company would
expect the three founders to stay with the newly merged company but feels a
rationalisation of the combined staff would be needed.

Required:

(a) Using the Johnson and Scholes strategic option framework, evaluate the strategic
options identified by the founders.
(15 marks)

(b) Identify and evaluate one other strategic option that the founders might pursue.
(6 marks)

(c) Recommend the most appropriate strategic option based on your analysis above.
(4 marks)

[Total 25 marks]

(CIMA – adapted)

7
Question 6 (20 marks)

Best-Insure is a small but successful short-term insurance company. All sales are made
telephonically. The organisation employs 25 staff of which 22 work in the telephone sales
department while the remaining three are responsible for all the accounts and administration
functions. As a result of its recent success in the market, Best-Insure is planning to expand its
operations.

The organisation has been evaluating its cost structures. Office rental is a significant cost in
the company’s operating budget. The management accountant has calculated that 90% of the
office costs can be avoided if the telephone sales staff worked from their homes. This idea
has, so far, been discussed only at board level.

At present, employees appear to enjoy their office environment. They spend most of their time
on the telephone and computer system selling insurance. Coffee and lunch breaks are
normally spent in the tea room or outside on the balcony where staff compare notes and
queries concerning their respective jobs. Furthermore, all the data that they need to perform
their tasks is available on the company’s computer system. This includes:

 records on each customer;

 access to the network that provides costs of insurance from other companies that sell
insurance; and
 other software for producing letters and insurance quotes to customers.

A proposal to work from home was put forward to the staff last week. Initially the proposal was
met with some resistance, even though the management accountant stressed that the proposal
was only a possibility.

Required:
a) Discuss, from the viewpoint of the staff of Best-Insure, the potential benefits that will be
gained by working from home.
You also need to explain the concerns that staff may have over working from home and
whether the IT infrastructure can assist in alleviating these concerns.
(10 marks)

b) Discuss what steps management can take to encourage Best-Insures staff to accept the
proposed change.
(10 marks)

(Students must refer to the scenario of Best-Insure in their answers)

[Total 20 marks]

(CIMA – adapted)

8
 MAC4863/2018

Question 7 (25 marks)

Metal Militia Motorcycles (MMM) is a custom motorcycle manufacturer which is family owned
that employs 20 people. MMM operates in a very competitive market, which has increased in
popularity because of various reality TV shows. MMM motorcycles are usually bought by
recreation motor bike riders with high disposable incomes who value quality, reliability and
performance. In 2016 it plans to make and sell 50 custom motorcycles. MMM’s Managing
Director (MD), Chris James, has a vision for the organisation to be regarded as the best custom
motorcycle builder in the industry.
MMM has always emphasised the high quality of its motorcycles and knows that its customers
are very knowledgeable. Each bike is built to a specific order and there is usually a period of at
least four months between an order being placed and the bike being delivered to the customer.
MMM’s manufacturing process is very traditional. Most of its designs are at least 10 years old
and much of the work on its motor cycles is done by hand. MMM regards its workforce as
‘craftspeople’ who have learned their skills through their work experience. MMM employs
school-leavers and provides apprenticeships lasting four years. However, most of its
competitors employ university graduates who have studied mechanical engineering.
MMM designs all its motorcycles manually which is very time consuming, although most of its
competitors now use Computer-Aided Design (CAD)/Computer-Aided Manufacturing (CAM)
suites for their designs. MMM does not have any staff with CAD/CAM experience.
Recently some of the specially developed alloys that MMM uses in the manufacturing of its
motorcycles have become difficult to obtain, where the prices of these alloys have risen by as
much as 40% in the last two years. Many of MMM’s competitors have replaced these materials
and are using substitute materials which are easier and cheaper to obtain.
In 1998, MMM employed a consultant who designed a standard costing system for its use in
the manufacturing operations. This system is still in use at MMM today. Chris James (MD) relies
on the standard costing system which is his only control system for the organisation.
Chris knows that the manufacturing cost of a motorcycles amounts to 50% of MMM’s total cost
and believes that if he is in control of 50% he is in control of at least half the cost. However,
Chris has experienced some difficulty in his role as the control system only reports financial
results. Chris would prefer a system that provides integrated control over all aspects of the
business, and has been considering the use of a Balanced Scorecard.
MMM’s business arises from repeat orders and recommendations. However, it has experienced
criticism in the last year because it failed to meet the promised delivery time for 30% of its orders
and has lost business because potential customers said that MMM’s motorcycles looked ‘old-
fashioned’ and they were ‘too slow’.
Cash flow is particularly important for MMM because of the four month lead time for each
motorcycle, where the organisation has been under pressure recently. MMM has had to
increase its overdraft facility and this is nearly fully utilised. Every year since its inception MMM
has reported a profit, however at the end of 2015 MMM made a loss.

9
Required:
a) Evaluate the strengths and weaknesses of MMM’s current control system. (Being the
standard costing system developed in 1998).
(9 marks)

b) Advise Chris James (MD) on the following:

(i) How the Balanced Scorecard could be applied and used within MMM. You should also
suggest and justify ONE measure for each of the Balanced Scorecard's
perspectives. (Relate to MMM in your answer)
(10 marks)

(ii) What THREE potential problems he might encounter if he introduces the Balanced
Scorecard at MMM.
(6 marks)

[Total 25 marks]

(CIMA – adapted)
Question 8 (25 marks)

Ripple Creak is a craft brewery that currently employs 100 people. The organisation produces and
sells a range of unpasteurised, preservative and additive free beers and ciders. Ripple Creak's
last Marketing Director was away from work due to an illness for most of last year and has now
retired. Recently Ripple Creak appointed a new Marketing Director who had previously worked for
a rival craft beer organisation.

The new director's analysis of Ripple Creak’s marketing approach is that the company adopts too
many 'copycat' strategies by simply copying the actions of its competitors. He believes that Ripple
Creak needs to become more strategic in its approach with a more systematic planning process.

In addition, he notes the increasing cost of using contractors to dispose of waste from the
production process for brewing beer and cider. His previous company recycled such waste to
make a soil enrichment treatment. This was used by both the company and its suppliers/farmers
and still there was too much for their needs.

The new director has announced a series of initiatives including:

• Developing an effective strategic marketing plan in conjunction with key stakeholders.
Such a strategy would need the approval of Ripple Creak’s Executive Board.
• Using a more strategic approach to product investment utilising models and frame-works
such as the product lifecycle and the Boston Consulting Group (BCG) matrix.

• Adopting more sustainable practices which he feels would 'make good business sense'.

10
 MAC4863/2018

Required:

a) Describe the required features of Ripple Creak’s new strategic marketing plan in order for
it to be considered effective.
(10 marks)

b) Explain how the marketing models and frameworks identified by the new director might
assist Ripple Creak in managing its product portfolio. (Refer to both models in your
answer)
(10 marks)

c) Explain the potential benefits of sustainability to Ripple Creak.

(5 marks)

[Total 25 marks]

(CIMA – adapted)

Question 9 (25 marks)

Vita Drinks was founded in 1996 by Jason Kennedy. He first considered the idea of adding
vitamins to water one day on his way to gym, when he felt like he was catching a cold, so he took
some vitamins and drank some water. It was not easy to launch his company as he had to deal
with a number of problems. He had no actual experience in beverage manufacturing and had to
use his own personal savings to start up the company.

Fast forward 20 years and Vita Drinks is now a thriving business. The company has always
supported sporting events including those at schools as part of its stated commitment to help
promote healthy lifestyles, and to increase its market share and brand awareness. The company
has a corporate social responsibility (CSR) policy to behave ethically while helping improve the
quality of life of society in general. Vita Drinks has a number of initiatives in place to help local
charities on an on-going basis. Vita Drinks is also committed to minimising the impact of its
activities on the environment. Vita Drinks has a low staff turnover rate as the company is known
in the industry to be a good company to work for.
Following the pattern of its major rivals, Vita Drinks has recently sought celebrity endorsements
for its products. Vita Drinks has asked a well-known rapper named Gee Wiz for his endorsement
as he would appeal to a particular target market segment.
When this announcement was made in the press there was criticism from religious and human
rights groups because of Gee Wiz’s music’s association with exploitation of women, violence
and bad language. One newspaper editorial accused Vita Drinks of ‘endorsing immorality’. In
response, Vita Drinks decided not to use Gee Wiz in its campaigns and admitted that it had made
an error in judgement in a press statement.
Now Vita Drinks has received further criticism in the press. An international health ‘watchdog’
body has reported that Vita Drinks products may contain vitamins and minerals but it is loaded
with sugar, which can lead to all sorts of health problems. The research done by the ‘watchdog’
body found that the sugar content contained in Vita Drinks products is the same as a bottle of
regular soda drink. Vita Drinks has yet to respond to the report.

11
Required:
(a) Discuss what the consequences of the above two recent bad press publications would have
on Vita Drinks ethical and CSR position. Include in your answer possible responses to the
‘watchdog’ body. (10 marks)

(b) Recommend and discuss using Ansoff Matrix how Vita Drinks can expand its business,
give examples which relate to Vita Drinks for all of the matrix options.
(You are not required to draw the matrix). (10 marks)

(c) Debate the proposed 20% sugar-sweetened beverages (SSB) tax in South Africa.
(5 marks)

[Total 25 marks]

Question 10 (30 marks)

Venus Solar Systems (Venus) is a renewable energy company. Their products include solar
street lights, solar powered refrigerators and freezers, and a solar home pack that is designed to
give households a reliable source of electricity.

Venus has enjoyed considerable success in South Africa due to the infamous load shedding.
Now Venus would like to expand its operations into other African countries. The directors of
Venus are well aware that it may be difficult to break into the African markets that are already
being served by other well-established local and international companies. In order to help
determine whether to pursue this expansion strategy, the directors of Venus have decided to
collect as much intelligence information as possible on its potential competitors in the other
African countries.

Required:
a) Explain what would be involved in Venus gathering competitive intelligence information.
You must make reference to the type of information that is needed and the different sources
that could be used.
(12 marks)

b) Evaluate the external environment if Venus were to expand its business into other African
countries. Use an appropriate external environmental analysis framework, and motivate
why you are using that particular framework.
(12 marks)

c) Discuss and recommend using Porter’s generic strategies what would be the best
strategy for Venus to use when entering the new markets in Africa. (6 marks)

(Your answers must relate to Venus and African countries)

[Total 30 marks]

(CIMA – adapted)
©
UNISA 2018

12