MAC3703 Assignment 2 (QUALITY ANSWERS) Semester 1 2024

This document contains workings, explanations and solutions to the MAC3703 Assignment 2 (QUALITY ANSWERS) Semester 1 2024. For assistance call or us on 0.6.8..8.1.2..0.9.3.4..... QUESTION 1 (20 MARKS) DNF Waste & Environmental Services (DNF) is an Environmental Management and Waste Management Services Company that was created in 2008. It is one of the leading waste and environmental management service providers in South Africa. DNF is a 100% Black woman owned business and is a Level 1 Value Added Supplier and Exempted Micro Enterprise in terms of the latest BBBEE Codes of Good Practise. Waste Management services include Onsite Waste Management, Collection and Recycling, Static and Mobile Buyback Centres, Call2Action Programme, Oil Recycling and Glass Beneficiation Environmental Management services include Auditing, Management Systems Implementation, Assessments & Monitoring and Training. The founder of the company Ms. Dee recently left the company and Ms. Lee, her daughter, has since taken over as the company managing director. Since Ms Dee’s departure, DNF has had a high staff turnover due to unhappy employees. During Ms Dee’s tenure the employees were allowed to rate themselves using their own ratings for certain agreed performance criteria. Management would then assess and review the rating. Ms. Lee felt that this was not effective as the performance metric as most employees did not rate themselves on their contribution towards the company’s financial targets (sales, productivity, profit etc.). She also felt that this was the reason why profits didn’t grow. Ms. Lee is worried that the company has been severely impacted by Coved 19, with sales and profits declining by more than 10%, a declining market share, high staff turnover and a growing negative attitude amongst employees of the company towards the future prospects of the company. She then decided to change the performance metrics to a more formal approach focusing mainly on key metrics related to sales and productivity for the company rather than the employee selected metrics. She also reduced costs including staff salaries by 20% to stabilise the company. This led to a mass resignations at the company were employees were not happy with these decisions. They feel MAC3703/Assignment 2/2024 4 that it is difficult to reach the company’s sales/financial targets due to the coved impact and that the 20% reduction in salaries is unfair. Despite the challenges that the company is experiencing, Ms. Lee is still excited about the growth prospects of the company as the company is a market leader in Research and development and very innovative in terms of product development. DNF has a very strong asset base that can be used for potential investment in capital projects. The company is also heavily involved in community projects through their “no child to attend school barefoot” project which is geared towards assisting the community. The following was noted with respect to employee behaviours:  Ms Dee’s tenure – employees did more than what was required of them, although not all these tasks resulted in the company meeting its financial targets.  Ms. Lee's tenure – employees feel forced to pursue financial targets and aren’t happy with this cold approach REQUIRED: (a) Contrast and discuss the performance appraisal metrics used by both Ms Dee and Ms. Lee during their tenure as CEO of the company (6 Marks) (b) Discuss by making use of Drucker’s management by objectives how the company is performing in relation to each objective. (8 marks) (c) Contrast and discuss the Rosseau and Greller’s psychological contracts used by DNF Waste & Environmental Services during Ms Dee’s and Ms. Lee's tenures? (6 marks) (Total: 20 marks) QUESTION 2 (25 MARKS) You are a management accountant working in B Company – a company based in northern Europe, which manufactures and sells a range of eye and dental care products. In 20X0, B Company established a $25million joint venture manufacturing plant in Asiana, a country in northern Asia. The objective was to produce a range of high-quality eye care and optical merchandise in Asiana, and to sell the products in Asiana and its neighbouring countries. The joint venture partner, C Corporation, was a leading and highly reputable eye-care institute, with a worldwide reputation for research and development in optical products. The Board of Directors of B Company considered the Asiana market particularly as an opportunity to service the needs of a large and increasingly affluent population. Asiana has a total population of over 500 million people. In recent years, the central government of Asiana has reduced import duties imposed on imported materials in order to attract foreign investment. MAC3703/Assignment 2/2024 5 Project scope Approved in August 20X0, the project to construct the new manufacturing plant began with the selection and formation of a multi-national project team. For the project objectives to be met, production of eye-care products needed to start in October 20X2 and total project costs needed to be within $25 million. All manufacturing and design processes must meet ISO 9001 (1994) quality standards. The project team selected an Asianan architectural and engineering firm, V, a long-established and highly reputable firm, to prepare detailed construction drawings and performance specifications from B Company’s concept designs. Project background It was necessary to overcome major obstacles to complete the manufacturing plant, including highly bureaucratic paperwork, different management styles, lack of available basic utilities such as electricity, water and sewage, and limited communication networks. B Company’s style of management is democratic and participatory, with a strong emphasis on teamwork. This contrasted with the more autocratic style of management practised in Asiana. Project team management The main project team was divided into sub-teams, each responsible for a product line. Reporting on cost, schedule and technical performance occurred on a weekly basis, by each product line manager to the Project Manager. The Project Manager, an experienced senior manager from B Company, selected the team members on the basis of their expertise, flexibility and ability to work under pressure within a team environment. The team included members from various departments of B Company (see chart). The team members were mainly based at the European HQ (with the exception of the product line managers who were based on site in Asiana). The project team also contained staff from C Corporation who were based on the Asiana site. The on-site manager in Asiana was responsible for all activities on site, and reported directly to the Project The project team structure is shown in the diagram below. Risk management The risks of managing and controlling such a complex multi-national project were recognised by B Company as falling into two key categories – internal and external. Internal risks were monitored and controlled by means of regular financial reporting, clear project structure, clearly-defined project roles and clear levels of authority and reporting responsibilities. External risks included changes in government regulations (fluctuating duty tariffs, import restrictions), unavailability of basic resources, MAC3703/Assignment 2/2024 6 lack of skilled manpower and bureaucratic slowness. B Company considered that these were out of the control of the project team and therefore only needed to be monitored. Project outcome The Asiana plant began production on 1 November 20X2, 26 months after project approval. The project was only two weeks late, completed only marginally over budget ($70,000) and met all of the original quality deliverables. The Board of Directors of B Company considered the project to be a complete success. However, it has been agreed that within the next six months a detailed post-completion review must be carried out to evaluate the real impact of this project and the future developments required REQUIRED: a) At the beginning of the project, analyse the problems likely to be faced by the Project Manager when selecting and leading the international project team. (8 marks) b) Draft an e-mail in which you explain to the Asianan managers of Company C: (i) the benefits and applications of team-working (8 marks) (ii) how teams develop over time. (9 marks) (Total: 25 marks) QUESTION 3 (20MARKS) Saule Pharmaceuticals Ltd (Saule) is a developer and manufacturer of medical drugs, based in Bloemfontein but selling its products all over the world. As a listed company, the overall objective of the company is to maximise the return to shareholders and it has used return on capital employed (ROCE) as its performance measure for this objective. There has often been comment at board meetings that it is good to have one, easily-understood measure for consideration. The company has three divisions: A. the drug development division develops new drug compounds, taking these through the regulatory systems of different countries until they are approved for sale; B. the manufacturing division then makes these compounds; C. the sales division then sells them. Saule’s share price has underperformed compared to the market and the health sector in the last two years. The chief executive officer (CEO) has identified that its current performance measures are too narrow and is implementing a balanced scorecard (BSC) approach to address this problem. The current performance measures are:  Return on capital employed  Average cost to develop a new drug  Revenue growth The CEO engaged a well-known consulting firm who recommended the use of a BSC. The consultants began by agreeing with the board of Saule that the objective for the organisation’s medium-term strategy was as follows: MAC3703/Assignment 2/2024 7  Create shareholder value by:  Innovating in drug development  Efficiency in drug manufacturing  Success in selling their products The consulting firm has presented an interim report with the following proposed performance measures:  Financial: ROCE  Customer: Revenue growth  Internal business process: Average cost to develop a new drug  Learning and growth: Training days provided for employees each year The CEO and the lead consultant have had a disagreement about the quality and cost of this work and as a result the consultants have been dismissed. The CEO has commented that the proposed measures lack insight into the business and do not appear to tackle issues at strategic, tactical and operational levels. The CEO has decided to take this work in-house and has asked you as the performance management expert in the finance department to assist him by writing a report to the board to cover a number of areas.  Firstly, following the disagreement with the consultants, the CEO is worried that the consultants may not have been clear about the problems of using the BSC in their rush to persuade Saule to use their services.  Secondly, he wants you to evaluate the choice of performance measures currently used by Saule and those proposed by the consulting firm.  Thirdly, there has been a debate at board level about how ROCE should be calculated. The marketing director stated that she was not sure what profit figure (of at least four which were available) should be used and why, especially given the large variation in result which this gives. She also wondered what the effect would be of using equity rather than all capital to calculate a return on investment. Some basic data has been provided in Appendix 1 to assist you in quantifying and evaluating these possibilities. Finally, the drug development divisional managers have been lobbying for a new information system which will assist their research chemists in identifying new drug compounds for testing. The new system will need to be capable of performing calculations and simulations which require high computational power and memory but will also need to have access to external data sources so that these scientists can keep up with developments in the field and identify new opportunities. The CEO is worried about the cost of such a new system and wants to know how it would fit within the existing lean management approach within that division. REQUIRED: Write a report to the board of Saule Pharmaceuticals Ltd (Saule) to a) Assess the problems of using a balanced scorecard at Saule. (8 marks) b) Evaluate the choice of the current performance measures and the consulting firm’s proposed performance measures for Saule. (12 marks) (Total 20 marks) MAC3703/Assignment 2/2024 8 QUESTION 4 (25 MARKS) DMG Manufacturing (DMGM) owns a high-rise office building with glass cladding (a protective covering) and adjacent factory premises, and it operates from these factory premises. DMGM refurbishes and sells electric motors. Its processes include stripping down old motors, sandblasting motor casings, armature winding, varnishing, spray-painting and assembly. In order to write a risk management statement, the risk manager will carry out a physical inspection to familiarise himself or herself with the factory layout and processes. The risk management process of identification will consist of listing all manufacturing processes using a checklist to ensure that he or she asks all the relevant questions. The checklist will also include questions such as what flammable liquids are used, in what quantities, and where are they stored? During the identification step of the risk management process for DMGM, the risk manager identifies the following insurable risks: The next step in the risk management process is to measure the potential risks, or place a value on the impact of the risk. The measurement process for DMGM reveals the following information: Fire damage to the office building: The low potential for fire in the office building is further improved by the construction specification that includes fire resistant doors on stairways and the installation of a sprinkler system. In the event of fire, estimates suggest that the damage would be limited to 60% of the building. However, this exercise identified the possibility of damage through accidental activation of the sprinkler system. This risk must be added to the list. Sprinkler leakage: In the case of leakage, estimates suggest that the damage would be 15% of the insured contents value of the office building. Fire damage to factory premises: The factory premises contain potential sources of ignition and inflammable material that could feed a fire. Open flames are used to strip old motors. Therefore, the potential for fire damage is high and likely to be 80% of the total value of the contents and building. Fire would also damage the combustible components of the stock of refurbished and new motors. Risk Office building Factory premises Fire Low probability High probability Explosions Low probability High probability Storm High probability of hail damage to glass cladding Medium probability Riot and strike Low to medium probability related to possible labour disputes Low to medium probability related to possible labour disputes Theft Medium probability Low probability Personal liability Low probability High probability MAC3703/Assignment 2/2024 9 Storm damage: The potential loss from storm damage is estimated at 25% of the value of the factory premises, and 20% of the value of the office building. The potential damage to the glass cladding must be separately evaluated. The impact of hail damage could be 25% of the total cost of glass replacement, representing one total side of the building. Statistics also show that, on average, five panes of glass break accidentally every year. This equates to R4 000 in total, at a cost of R800 per pane Riot and strike damage: The potential loss from riot and strike damage is estimated at 10% of the total value of the factory premises Theft: In the case of theft the estimate loss, per event, is R50 000 for the factory and R10 000 for the office Product liability: The refurbished products could attract product liability claims against DMGM if DMGM's negligence caused damage to property where the motors are installed. The estimated loss is R2 million, inclusive of legal fees. Business interruption: A fire could seriously impact on the ability of the business to continue. In this event, competitors would move into DMGM’s market if the company could not provide its services for an extended period. It is estimated that DMG could be affected for at least six months after a serious fire REQUIRED Draft a risk management plan to deal with the following risks that have been identified: (a) fire and explosion (10 marks) (b) business interruption; and (5 marks) (c) product liability (5 marks) (Total: 25 marks) QUESTION 5 (10 MARKS) Allied Electronics Corporation was founded in the year 2018, and since then it has gained huge reputation as the best supplier, distributor and service provider of Currency Counting Machine. The company has achieved an indisputable place in this competitive industry Below is the extract from the financial information used to measure performance of the company:  The company had R10 million ordinary shares in issue at the beginning of the year (1 January 2023)  The profit after tax for the full year ending 31 December 2023 was R5 million of which only R4,4 million is attributable to the Ordinary shareholders.  Average market price of one ordinary share during year was R75  500 000 8% Redeemable cumulative preference shares were issued on 1 Jan 2023. The total MAC3703/Assignment 2/2024 10 proceeds were R6 mil. The effective interest rate is 10% per year.  % cumulative, convertible preference shares were issued for R2 000 000 on 1 April 2023. Each preference share is convertible into one ordinary shares in July 2025.  200 000 non -cumulative, non-redeemable preference shares were issued for R4 000 000 on 1 July 2022. A discretionary dividend of R400 000 was declared on these preference shares on 31 December 2023.  Warrants to buy 1000,000 ordinary shares at R65 per share for a period of five years were issued on 1 January 2023. All outstanding warrants were exercised on 1 September 2023 REQUIRED Calculated EPS and DEPS for the year ended 31 Dec 2023 (10 marks)