MAC3761
EXAM SOLUTIONS
SEMESTER 01 2023
1.
(a) Three ethical concerns evident from the scenario are:
Conflict of interest: The manager of the Farming Division proposing the relocation to
a property owned by a family member raises concerns about favoritism and potential
personal gain from the decision.
Environmental impact: The disposal of waste from the slaughtering process raises
ethical concerns regarding the potential harm to the environment and the need for
proper waste management.
Quality control: The independent quality inspection of meat at the Ready-made Meal
Division reflects the ethical concern of ensuring consumer safety and satisfaction by
maintaining high-quality standards.
(b) Two situations where it would be acceptable for the Intshe Head Office to interfere
in transfer pricing are:
Unfair pricing: If divisions negotiate transfer prices that are significantly different from
the market value or deviate from fair and reasonable pricing, the Head Office may
intervene to ensure fairness and prevent exploitation.
Strategic decision-making: If the transfer pricing decisions of divisions have significant
implications for the overall profitability and strategic direction of the company, the Head
Office may intervene to align the pricing with the company's goals and objectives.
(c) Three points to determine whether Intshe (Pty) Ltd operates a divisionalized
organizational structure:
Reporting structure: The fact that the Farming Division, Leather Division, Butchery
Division, and Ready-made Meal Division report to the Head Office indicates a
divisional structure.
Decision-making authority: Divisions are responsible for decisions that affect their
respective divisions, indicating decentralization of decision-making within each
division.
Profit centers: The Farming Division being an investment center suggests that each
division operates as a profit center, further supporting the idea of a divisionalized
structure.
(d)
To determine the total amount of FY2024 budgeted joint costs that should be allocated
to meat as a joint product of the Farming Division, we need to consider the information
provided.
According to the information given, the budget for the FY2024 includes joint direct
material costs of R42 million and joint conversion costs of R18 million up to the split-
off point.
, To allocate joint costs to joint products, the Farming Division uses the market values
at the split-off point method. It is stated that each ostrich slaughtered at the split-off
point generates proceeds of R3,200 for the farm, of which R896 is from skin sales,
R192 is from feather sales, and the remainder is from meat sales.
Based on this information, we can calculate the portion of the total proceeds that
comes from meat sales:
Total proceeds per ostrich = R3,200
Proceeds from skin sales = R896
Proceeds from feather sales = R192
Proceeds from meat sales = Total proceeds per ostrich - (Proceeds from skin sales +
Proceeds from feather sales)
Proceeds from meat sales = R3,200 - (R896 + R192)
Proceeds from meat sales = R3,200 - R1,088
Proceeds from meat sales = R2,112
Now, to calculate the total number of ostriches processed into joint and by-products in
FY2024, we need to refer to the given budgeted information, which states that 30,000
ostriches are expected to be processed.
Next, we can calculate the portion of the joint costs allocated to meat by using the ratio
of proceeds from meat sales to the total proceeds per ostrich:
Portion of joint costs allocated to meat = (Proceeds from meat sales / Total proceeds
per ostrich) * Total joint costs
Portion of joint costs allocated to meat = (R2,112 / R3,200) * (R42 million + R18 million)
Portion of joint costs allocated to meat = (0.66) * (R60 million)
Portion of joint costs allocated to meat ≈ R39.6 million
Therefore, the total amount of FY2024 budgeted joint costs that should be allocated
to meat as a joint product of the Farming Division is approximately R39.6 million.
(e)
The Farming Division management must carefully consider various factors when
deciding whether to relocate the operations of the farm in the 2025 financial year. Here
are six factors they should consider:
Potential Profit from Sale of Current Property, Plant, and Equipment:
The manager mentioned the potential profit from selling the current property, plant,
and equipment as one of the reasons for the proposed relocation. The management
should assess the market value of the existing assets and evaluate if the potential
profit justifies the costs associated with the relocation.
Cost and Availability of Land in the Limpopo Province:
The availability of specific land in Limpopo at a "bargain" price from a family member
may seem attractive, but the management needs to conduct a thorough analysis of
the cost and suitability of the land for ostrich farming. They should consider factors
such as soil quality, access to water sources, infrastructure, and any potential
environmental risks.
EXAM SOLUTIONS
SEMESTER 01 2023
1.
(a) Three ethical concerns evident from the scenario are:
Conflict of interest: The manager of the Farming Division proposing the relocation to
a property owned by a family member raises concerns about favoritism and potential
personal gain from the decision.
Environmental impact: The disposal of waste from the slaughtering process raises
ethical concerns regarding the potential harm to the environment and the need for
proper waste management.
Quality control: The independent quality inspection of meat at the Ready-made Meal
Division reflects the ethical concern of ensuring consumer safety and satisfaction by
maintaining high-quality standards.
(b) Two situations where it would be acceptable for the Intshe Head Office to interfere
in transfer pricing are:
Unfair pricing: If divisions negotiate transfer prices that are significantly different from
the market value or deviate from fair and reasonable pricing, the Head Office may
intervene to ensure fairness and prevent exploitation.
Strategic decision-making: If the transfer pricing decisions of divisions have significant
implications for the overall profitability and strategic direction of the company, the Head
Office may intervene to align the pricing with the company's goals and objectives.
(c) Three points to determine whether Intshe (Pty) Ltd operates a divisionalized
organizational structure:
Reporting structure: The fact that the Farming Division, Leather Division, Butchery
Division, and Ready-made Meal Division report to the Head Office indicates a
divisional structure.
Decision-making authority: Divisions are responsible for decisions that affect their
respective divisions, indicating decentralization of decision-making within each
division.
Profit centers: The Farming Division being an investment center suggests that each
division operates as a profit center, further supporting the idea of a divisionalized
structure.
(d)
To determine the total amount of FY2024 budgeted joint costs that should be allocated
to meat as a joint product of the Farming Division, we need to consider the information
provided.
According to the information given, the budget for the FY2024 includes joint direct
material costs of R42 million and joint conversion costs of R18 million up to the split-
off point.
, To allocate joint costs to joint products, the Farming Division uses the market values
at the split-off point method. It is stated that each ostrich slaughtered at the split-off
point generates proceeds of R3,200 for the farm, of which R896 is from skin sales,
R192 is from feather sales, and the remainder is from meat sales.
Based on this information, we can calculate the portion of the total proceeds that
comes from meat sales:
Total proceeds per ostrich = R3,200
Proceeds from skin sales = R896
Proceeds from feather sales = R192
Proceeds from meat sales = Total proceeds per ostrich - (Proceeds from skin sales +
Proceeds from feather sales)
Proceeds from meat sales = R3,200 - (R896 + R192)
Proceeds from meat sales = R3,200 - R1,088
Proceeds from meat sales = R2,112
Now, to calculate the total number of ostriches processed into joint and by-products in
FY2024, we need to refer to the given budgeted information, which states that 30,000
ostriches are expected to be processed.
Next, we can calculate the portion of the joint costs allocated to meat by using the ratio
of proceeds from meat sales to the total proceeds per ostrich:
Portion of joint costs allocated to meat = (Proceeds from meat sales / Total proceeds
per ostrich) * Total joint costs
Portion of joint costs allocated to meat = (R2,112 / R3,200) * (R42 million + R18 million)
Portion of joint costs allocated to meat = (0.66) * (R60 million)
Portion of joint costs allocated to meat ≈ R39.6 million
Therefore, the total amount of FY2024 budgeted joint costs that should be allocated
to meat as a joint product of the Farming Division is approximately R39.6 million.
(e)
The Farming Division management must carefully consider various factors when
deciding whether to relocate the operations of the farm in the 2025 financial year. Here
are six factors they should consider:
Potential Profit from Sale of Current Property, Plant, and Equipment:
The manager mentioned the potential profit from selling the current property, plant,
and equipment as one of the reasons for the proposed relocation. The management
should assess the market value of the existing assets and evaluate if the potential
profit justifies the costs associated with the relocation.
Cost and Availability of Land in the Limpopo Province:
The availability of specific land in Limpopo at a "bargain" price from a family member
may seem attractive, but the management needs to conduct a thorough analysis of
the cost and suitability of the land for ostrich farming. They should consider factors
such as soil quality, access to water sources, infrastructure, and any potential
environmental risks.
