Question 3 [14 Marks]

Minnie Seleka, a private management consultant, has recently been engaged by the Sawana Company which was in the process of reviewing various operations within the organization. Based on the directive given by the CEO of Sawawa Company, the organization had become increasingly concerned with various aspects of financial activities in the two [2] divisions that operate within the Sawana Company. The two [2] divisions are the Letswai One Divisionand Letswai Two Division.The Letswai One Divisionmanufactures Soda which is used in the manufacture Umo Salts by the Letswai Two Division. Currently the Letswai One Divison has the capacity to manufacture 100,000 tonnes of soda annually, 80% of which is transferred to the Letswai Two Division manufacturing, and the rest is sold in the external market at market price.

Operating data for the year 2023 has been provided as follows:

SAWANA COMPANY

Letswai One Letswai Two

Variable costs per tonne P1.50 P5.40

Fixed costs per tonne P1.00 P3.00

Market price per tonne P4.40 P13.50

During the year 2023 the CEO of the Sawawa Company determined that all inter-divisional transfers should be made at 160% of full costs.

Required:

[a] Using the transfer pricing method recommended by the CEO, determine the profits earned by each of the two [2] divisions in the year 2023 if the Letswai One Division operated at full capacity of 100,000 tonnes. [6]

[b] Discuss any other two [2] factors that would need to be considered if the two divisions operated in an International Transfer Pricing [ITP] situation. [4]

[c] Companies use either profit-margin or mark-up on costs in the determination of selling price. Explain why the profit margin method of pricing is preferable for use by companies world-wide. [4]

Question 4 [13 Marks]

Preface: Ala Gae (AG) Corporation was formed in 2017 as a consortium of Golf Club Associations in the Southern African Region. It currently boosts a whopping 68 membership [clubs] across the region. Initially administered from Windhoek [Namibia], its headquarters were moved to Gaborone in December 2023. It is currently managed by a group of experts in Golf Club Operations, all originating from the United Kingdom.

David Keletso, Leisure Department Director at Ala Gae (AG) Corporation was gearing up to prepare his budget for the coming financial year, an annual activity that often caused him considerable frustration. So, when he saw a mailing about a variation of budgeting and costing techniques, he opened it, read it, and then the called the author, Mr Samuel Seboni. Keletso was dreading budget season because the AG process followed a typical cost-plus model, in which a department's annual budget is based on the previous year's amount, plus a percentage for inflation or other factors. Once approved, a cost-plus budget, which remains the predominant method of budgeting in the contemporary corporate world, functions as a check book to which no funds can be added.

Keletso was evaluated primarily on whether he stayed within budget, not on how much value he provided to his customers. So, when departments wanted Leisure Department help to launch new initiatives, he could do no more than add their requests to his growing queue and hope that he could pilfer money from somewhere else in his ever-so-fixed budget.

However what began as a conversation with Simone about building a more value-driven budget for the Leisure Department would ultimately turn into a multiyear project to transform the budgeting process of the entire AG headquarters' operationand its organisational structure, workflows and even its culture. Along the way, Keletso's role would grow from catalyst to design team committee member to behind-the-scenes thought leader.

A Road Map for Transformation

The 120-person staff at AG headquarters is brimming with passionate, well-intentioned people, many of whom took pay cuts to work there. Yet, an 'I'm busy doing my job'mentality was crippling the organisation's ability to respond to the business challenges it faced. "People did not talk to each other," says Harry Stacy, assistant to the Administration Director. "I don't mean they didn't trust each other. They were so passionate about what they were doing, they just went along and did it."

Communication suffered; multiple purchasing functions and editorial groups was rampant. The cost-plus budgeting process, which many managers delegated to their subordinates, exacerbated the problem, since there was no mechanism to review whether existing programs were worth sustaining. Once funded, most programs were simply continued.

Frustrated by his inability to climb out of the maintenance trap and meet requests to fund new development, Keletso called Simone. But the conversation surprised him. After Keletso described AG's broken budgeting process, Simone quickly (and correctly) surmised that there were deeper issues: The organisation was stuck in maintenance mode, even flirting with irrelevance. He suggested that AG step back and look at these larger problems.

The organisation was, in fact, attempting to do just that. They had launched a Vision Towards Transformation (VTT) effort in January 2021. After AG Corporation members in the entire Southern African region arrived at a common vision for the club, the VTT focus turned to a review of headquarters' operations in the June 2021. The review committee "met, and frankly, we didn't know where to start," says Keletso, a committee member. "So we just scheduled another meeting for later." But after his conversation with Simone, Keletso introduced other top executives to Simone's ideas. They soon decided to include him as a consultant in designing the blueprints for VTT.

A VTT design team, comprising 23 managers from all functions within the organisation, began by soliciting input from employees on how headquarters operated. Just over half, about 62, participated at several gatherings which Stacy characterizes as "good venting sessions." Breakout sessions on hot topics allowed for deeper discussions, and every single comment was documented. Stacy would later invite employees to e-mail their concerns to him "vindictive and hurtful," but employees toned it down after he asked for more constructive criticism. The design team reviewed all comments, pulling from them five particular trouble spots: partnership with customers (both internal and external), resource management, product design, operational services and people management. They mapped every post-it note to one of the challenge areas.

Simone led the design team in a root-cause analysis. One thing jumped out most of all from the post-it notes: AG's organisational culture was holding it back. "The people there are very, very sincere. They felt called there to run improve Golfing in the region," explains Simone. "But since they were called, they felt it was up to them to sort out what to do as opposed to serving customers who'd tell them what they wanted."

Ironically, the extreme cordiality of the staff was part of the problem. "Sometimes being polite to one another can be detrimental," Simone says. "Organisations may avoid conflict to the point of not resolving issues or will even tolerate ambiguity and go their separate ways." So instead of a culture of teamwork, there was too much empire-building and too little communication, often resulting in duplication of efforts and inefficient use of resources. In the July of 2003, the design team decided to focus on transforming the organisational culture and structure. The goal was to revamp AG's internal structure to match its external goals. A parallel effort to improve AG's resource allocation methods addressed the shortcomings of the budgeting process.

Required:

You have been drafted in to analyse and make recommendations to the Ala Gae Corporation on its budget regime. Your write up should highlight:

[a] Aspects of the current budgeting process that are good. [3]

[b] Current issues/ limitations with the budgeting process. [5]

[c] Recommendations and suggestions for improvement. [5]

Question 5 [8 Marks]

The Matovo Company is a major distributor of air-fryers in the Southern African market. Over the last decade, the supply of air-fryers from the Chinese and Taiwanese markets have been able to infiltrate the market, thereby setting prices that are lower than prices set in the local market. Like other local suppliers, the Matovo Company has relied on the supply of locally available raw material as part of a Southern African Development Community [SADC] initiative aimed at promoting goods produced by local businesses and protecting the market share of participants in the local market. It had been the view of customers that air-fryers produced in the local market are generally of superior, and that this is the result of support given to local businesses by SADC.

Recently however the quality of the imported air-fryers has improved substantially, as has the logistical supply routes between China and the African continent. The Managing Director of the Matovo Company, John Lolita, is concerned about the viability of the company at the lower prices. He subsequently hired you as the company management accountant and asked that you investigate the situation.

On the first day at work, you asked for information relating to sales made by the Matovo Company and by its competitors. The following summary is provided by the company's market analyst:

Company	Head Office Location	Price per air-fryer	Market Share
Hentex Air-fryers	Tanzania	P2,210.00	10%
Felix Energy	Swaziland	P2,300.00	15%
Xoi Long	China	P1,500.00	35%
Matovo Company	Botswana	P2,800.00	10%
Tio Pungun	Taiwan	P1,200.00	30%

Your initial investigations indicate that the higher selling prices cannot be sustained given the current market conditions. The Matovo Company currently sells 210 electric air-fryers monthly, and estimates that a price reduction of 10% will gain its increase market share by3%.

Required:

[a] Determine the total number of units sold in the market, and the total sales units of the Matovo Company if the price reduction of 10% is implemented. [3]

[b] Discuss the general relationship between prices and market share of air-fryer sales. Recommend two [2] strategies that the Matovo Company can employ to improve its market share.