01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

COLLEGE OF ACCOUNTING SCIENCES

DEPARTMENT OF MANAGEMENT ACCOUNTING

TEST 3: 25 JULY 2022

MAC3761
MANAGEMENT ACCOUNTING III
(40 marks)

2 hours (including 15 minutes download and 30 minutes upload time)

THIS PAPER CONSISTS OF EIGHT (8) PAGES

IMPORTANT INSTRUCTIONS:

This is a closed-book test.

Use of a non-programmable pocket calculator is permissible.
This test question paper remains the property of the University of South Africa.

The answering of this paper:

1. This paper consists of one (1) question with required (a) to (g).
2. All sub-sections must be answered.
3. All calculations must be shown.
4. Each sub-section must be commenced on a new (separate) page.

PROPOSED ALLOCATION OF TIME WHEN WRITING THE TEST:

13:00 – 13:15 Download and reading time

13:15 – 14:30 Writing time
14:30 – 15:00 Submission time

Honesty Declaration:

By submitting my solution to the test, I declare that:

• I know what plagiarism is, that plagiarism is wrong and that disciplinary steps can be taken
against me if I am found guilty of plagiarism;
• This solution, submitted by myself, is my own work;
• I have not assisted any other student in any manner and I have not had the assistance of any

[TURN OVER]

Open Rubric

about:blank 1/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 2 of 8
MAC3761 Test 3
July 2022

other person, in completing this test;

• I will not assist any other student in any manner and I will not obtain the assistance of any other
person, in completing this test;
• I know that if I am found to be in violation of this declaration I will receive 0% for this test.
Please note: You do not have to sign the declaration. By submitting your solution, you automatically
declare that you adhere to all the above with regards to this specific assessment.
IMPORTANT INSTRUCTIONS

The Invigilator app

• Please note that you should use The Invigilator App during Test 3 for MAC3761.
• Please remember to keep your cell-phone fully charged for the duration of the assessment.
• Please log into The Invigilator app if you have not done so yet. You need to be connected to the
internet in order to log in.
• Scan the QR code below once the test starts. If you encounter difficulty with scanning the QR
code, you can also enter the QR access code as indicated at the bottom of the QR code to start
the online invigilation.
• Once the QR code is scanned, avoid any disturbances by putting your phone on airplane mode.
No internet connection is needed during the assessment.
• Keep The Invigilator app open at all times on your cell-phone during the assessment.
• You may place your cell-phone next to you. Your cell-phone does not need to face you but should
be close enough for you to hear the notifications from The Invigilator app.
• The Invigilator app will notify you when an action is required.
• In order to receive notifications, do not put your cell-phone on silent mode and ensure that the
media volume is turned up.
• When an action is required, a notification beep will be heard, and an instruction will be visible.
• Please take note that once the test time is over, firstly focus on scanning and uploading your
script on your assessment platforms. Uploading your script is time sensitive.
• Once your script is uploaded on your assessment platform, you may switch on your data to start
the uploading process on The Invigilator app.

[TURN OVER]

about:blank 2/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 3 of 8
MAC3761 Test 3
July 2022

Submission instructions:

Please remember to complete the Honesty Declaration (Part of file submission process
below).

Follow these steps to submit your answer file.

• Go to https://my.unisa.ac.za/portal and login with your myUnisa credentials i.e. student number
and password.
• Click on myAdmin – Assessments and Assignments View.
• Alternatively, you can access the assignment submission tab from this link directly -
https://stratus.unisa.ac.za/sacdl20/asps/unisa_assignments.asp
• Students who cannot access myUnisa for the test question paper or to upload their answer scripts
should use the following link - https://mooc.unisa.ac.za/portal - CAS Test 3 2022.
Please note that this option must only be used if you struggle to upload or download your script
from myUnisa, as you need to register on the MOOC portal first, before you can continue.
• ATTACH/UPLOAD ANSWER FILE
• A new page will open. Scroll down to the blue Submit button.
• Make sure ALL your pages are converted into a single PDF document for uploading
(Make sure the file is not read-only or password protected).
• Click the Choose File button to browse for a file.
• Once you have attached your answer file, the name of the file, as well as the file size and
upload time stamp will be displayed.
• TIP: You may click Remove to remove the attachment if you selected the wrong file on
your device.
• Remember to complete the Honesty Declaration by typing in two separate words “I AGREE”
at the end of the submission process.
• SUBMIT ANSWER FILE
• When you are ready and satisfied that you have the correct answer file, click the Continue
button to complete your assessment submission.
• Be sure to submit on time, before the test session ends. Click Cancel to exit the
assessment without saving or submitting.
• Once you have submitted your assessment, you will receive a confirmation message on the
screen.
• Make a screen copy for your records.
• In addition, if you have opted to receive an email notification, you will also receive an email confir-
mation of your submission.

Additional instructions:

• The final submission of your answer script will be on myUnisa or the MOOC platform, and these
two platforms are the only valid submissions that will be accepted by the university.
• No emailed scripts will be accepted.
• Students are advised to preview submissions (answer scripts) to ensure legibility and that the
correct answer script file has been uploaded.
• Students are permitted to resubmit their answer scripts should their initial submission be unsatis-
factory.
• Incorrect file format and uncollated answer scripts will not be considered.
• Incorrect answer scripts and/or submissions made on unofficial examinations platforms will not
be marked and no opportunity will be granted for resubmission.
[TURN OVER]

about:blank 3/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 4 of 8
MAC3761 Test 3
July 2022

• Mark awarded for incomplete submission will be the student’s final mark. No opportunity for
resubmission will be granted.
• Mark awarded for illegible scanned submission will be the student’s final mark. No opportunity
for resubmission will be granted.
• Submissions will only be accepted from registered student accounts.
• Students suspected of dishonest conduct during the examinations will be subjected to disciplinary
processes. UNISA has a zero tolerance for plagiarism and/or any other forms of academic disho-
nesty.
• Students are provided 30 minutes to submit their answer scripts after the official test writing time.
Official test writing time ends at 14:30 and then you need to start uploading your answers.
The system closes at 15:00 ie 3pm. and late submissions will be rejected by the examination
regulations and will not be marked.

The test paper will remain available throughout the session.

Commence the submission (uploading) of your answer file as soon as you have completed the
assessment, do not wait for the session to conclude.

Suggestion: Start uploading your answer file at 14:30 (90 minutes after the start of the test
session) at the latest, to allow enough time for any delays in the process.

You must submit your answers in one pdf file. The file name of your pdf document must be in the
following format: Student number, space, MAC3761. For example: 33445566 MAC3761.

Your submission will be date stamped and only submissions received up to 15:00 (3pm.) will be
marked.

PROPOSED TIMETABLE:
MARKS Time
(minutes)
Question 1 Analysis of financial information and non-financial 40 75
information; Performance management; Cost of capital;
Treasury function, Strategy and risk management;
Standard costing; Costing systems; Price setting; Ethics.

[TURN OVER]

about:blank 4/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 5 of 8
MAC3761 Test 3
July 2022

QUESTION 1

Naledi Borwa Hotels (trading as “Naledi Borwa”) is the leading hospitality company in Southern Africa,
with more than 50 years of excellence providing a home away from home. The company has more than
110 hotels operating in South Africa, the Seychelles, the Rest of Africa and the Middle East. The Covid-
19 crisis has dealt the hospitality industry a serious blow and Naledi Borwa has not been spared from
the devastating impact of the lockdown and other restrictions imposed on the economy. However, the
easing of the restrictions over the past year, coupled with successful rollout of the Covid-19 vaccine,
has led to more economic activities across different sectors. The company is expected to have its
operations back up to the same levels seen before the Covid-19 pandemic lockdown and then continue
on that profit growth trajectory.

Naledi Borwa Hotels operates three main divisions, namely, Hotel Rooms Division, Food and Beverage
Division, and Gaming Division. The company’s head office is in Bryanston where it centralises, among
other things, its corporate affairs, treasury and funding functions. The company has a 30 June financial
year-end.

HOTEL ROOMS DIVISION

The Hotel Rooms Division is the hotel entity of Naledi Borwa that primarily provides short and medium
stays (from few days to a maximum of 6 months) to guests at its hotels across the country and abroad.
These hotels are either owned by Naledi Borwa, leased from property owners or managed on behalf of
third parties. The hotels belonging to Naledi Borwa Hotels have all been erected from the ground and
Hotel Rooms Division is responsible for the building, the expansion and the maintenance of this property
portfolio.

The Hotel Rooms Division also rents out its conference facilities and seminar rooms to companies and
other organisations for their seminars, workshops and conferences. These conference facilities and
seminar rooms are mainly situated within its hotel establishments.
The abridged income statement below relates to Hotel Rooms Division for the year ended
30 June 2022.

Income statement of Hotel Rooms Division

For the year ended 30 June 2022
2022 2021
Notes Rm Rm
Revenue 1 4 675 3 275
Employee costs (1 645) (1 312)
Amortisation and depreciation (468) (403)
Property and equipment rentals (431) (562)
Other hotel operating expenses 2 (1 322) (1 361)
Profit before finance costs 809 (363)
Allocated finance costs 3 (410) (403)
Profit/(loss) before tax 4 399 (766)

(Please turn over page for the notes)

[TURN OVER]

about:blank 5/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 6 of 8
MAC3761 Test 3
July 2022

Notes

Only 10% of revenue relates to revenue generated from management fees (on behalf of property
owners) and venue/conference hire. Historically 12 – 15% of total revenue has been earned from the
hotel operations outside of South Africa and the Division’s plan is to increase this share yearly.

1. Other hotel operating expenses are made up of the following.

Expense item 2022 2021

Rm Rm
Food and beverage costs – for hotel guests 318 288
Head office allocated costs 152 81
Information technology-related costs 76 58
Property costs – rates, water and electricity 449 295
Cleaning and housekeeping costs 230 165
Staff restructuring costs - 367
Other operating expenses 438 405
Loyalty programme income1 (341) (299)
Total 1 322 1 361
1
This income is the share of subscription income paid by frequent guests to enjoy various benefits offered
by Naledi Borwa Hotels. This is then distributed to the company’s divisions by head office based on
revenue generated by each division.

2. The finance costs relate to costs incurred in financing the operations of the company. These
costs are then allocated to each division based on the funds utilised for each division. The cost
of debt is 8,25% per annum and the cost of equity approximates 16%. The company’s target
capital structure (Debt: Equity) is 50:50.
3. The South African corporate income tax rate is 28% and the divisions use Naledi Borwa Hotels’
effective tax rate of 27,25% where applicable.
4. The following information is also made available.
2022 2021
Other salient information:
Hotel Rooms Division employees 6 596 5 844
Number of hotel rooms 16 766 16 198
Room nights available for booking during the year 4 759 000 4 314 000
Standard room rate per night (R) 1 450 1 525
Average occupancy rate (% of rooms available) 2 60% 55%
Controllable investments or invested capital (Rm) 10 123 9 645
Weighted average cost of capital (WACC) ? 12,5%
Required rate of return 18% 18%
Exchange rates – Average (R: $1) 15,05 15,61
2
Occupancy rate is the ratio of occupied rooms to total rooms available during the year.
[TURN OVER]

about:blank 6/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 7 of 8
MAC3761 Test 3
July 2022

FOOD AND BEVERAGE DIVISION

The company spends in excess of half a billion rand per year in food and beverage (for guest/patriot
meals and refreshments). Food and Beverage Division is responsible for the preparation of meals and
the production of the company’s now famous juice, Miss Juicy.
As part of preparation of meals and making juice, Food and Beverage Division procures significant
volumes of vegetables and fruits for all its hotels and game centres. The vegetables and fruits are then
used in the preparation of meals such as salads, main courses and desserts (Food preparation section)
and making of juices, wellness shots and spreads (Juicing section).

Oranges are the main raw materials used in the Juicing section. These are used to produce
simultaneously two products in almost equal proportion, orange juice concentrate and marmalade.
Some of the orange juice concentrate is further processed into 100% orange juice, branded Miss Juicy
and the rest is processed further by adding other ingredients like turmeric, kale, lemon and ginger to
make wellness shots that are a healthier drinking alternative. At split-off, marmalade mixture is also
processed further to make marmalade jam. Unused fruit peels and leaves from the production process
(only about 6% of total output value) are then sold to local farmers for fertilisation purposes.

Miss Juicy is internally transferred to the other divisions of the company (Hotel Rooms and Gaming) and
to external customers. However, the popularity of Miss Juicy has resulted in total annual demand of 8,8
million litres, which Food and Beverage Division cannot meet in full (the other two divisions contribute
60% of this annual demand). At maximum capacity of 8 million litres, each litre takes 6 machine minutes
to make at a raw material cost of R6,32. Direct labour costs are R5,20 per litre. Variable manufacturing
overheads are R4,80 per machine hour. Fixed manufacturing overheads are estimated at R30,4 million
per year.

Food and Beverage Division sells and delivers Miss Juicy to its external customers using transport tanks,
at R18 per litre (net selling price after taking into account delivery costs). For the internal market, Miss
Juicy packaged and branded with Naledi Borwa Hotels images and a welcome message to guests. The
cost of packaging and branding is 20 cents per 250 mililitres (required size by Hotel Rooms and Gaming
divisions). The Food and Beverage Division is proposing a minimum transfer price of R18 per litre for
Miss Juicy and believes that this transfer price will promote goal congruency.

All other products required in the food preparation and juice making are bought from various wholesalers
and supermarkets, and the company makes great effort in ensuring that in their procurement process,
preference is given to businesses from historically disadvantaged communities and that a significant
portion of its procurement spend benefits groups which qualify for broad-based black economic
empowerment. It is for this reason that Food and Beverage Division is currently in talks with a water-
bottling company, Hala Saleem Traders, with operations in Bluff, Durban, and whose bid was the
cheapest at R3 per 250 mililitres bottled water.

Miss Hala Saleem is a well-respected sole trader, community leader and a seasoned entrepreneur. Her
prices are low as she bottles fresh water from her meticulous home water tap. Due diligence performed
by Food and Beverages Division concluded that Hala Saleem Traders is well positioned to meet the
growing demand of bottled water. Hala Saleem Traders will be commencing the process of applying for
product approval with the South African Bureau of Standards (SABS), and Miss Saleem is confident the
application will be successful.

[TURN OVER]

about:blank 7/8
01/05/2024, 17:17 MAC3761 Test 3 25 July 2022

CONFIDENTIAL
Page 8 of 8
MAC3761 Test 3
July 2022

REQUIRED
For each question below, remember to:
• Clearly show all your calculations in detail; and
• Where necessary, indicate irrelevant amounts/adjustments with a R0 (nil-value).
(a) Analyse the financial performance of Hotel Rooms Division for the year ended
30 June 2022. As part of your analysis, you should calculate the key financial ratios
and provide practical reasons for movement in the ratios between the two financial
years provided above. Your analysis should focus on the following categories:
 Revenue analysis (4 marks)
 Profitability analysis (4 marks)
 Return on investment (3 marks)
 Residual income (2 marks)
 Weighted average cost of capital (2 marks) (15)
(b) Discuss factors Hotel Rooms Division would have to consider before expanding the
company’s footprint outside South Africa. (3)
(c) Advise the Naledi Borwa Hotels management on how the expansion outside South
Africa should be funded and on how to manage foreign exchange risk exposure of its
operations. Calculations are NOT required.
 How to fund expansion 3 marks; Managing risk exposure 2 marks (5)
(d) Calculate the sales price variance for Hotel Rooms Division for the year ended 30
June 2022. (2)
(e) Discuss which costing system is most appropriate for Food and Beverage Division in
allocating the production costs incurred in the Juicing section to products. Your
discussion should include reasons for your choice. Calculations are NOT required. (4)
(f) Advise if the proposed minimum transfer price of R18 per litre has been correctly
determined in terms of general transfer pricing guidelines and whether it would be fair
as a negotiated transfer price.
 Calculations 6 marks; Discussion 2 marks (8)
(g) Discuss any ethical concerns that Food and Beverage Division needs to consider
before procuring bottled water from Hala Saleem Traders. (3)
Total question 1 [40]

©
UNISA 2022

about:blank 8/8