The McIntyre Resort (MR), which is privately owned, is a world famous luxury hotel and gol

The McIntyre Resort (MR), which is privately owned, is a world famous luxury hotel and golf complex. It has been chosen as the venue to stage ‘The Robyn Cup’, a golf tournament which is contested by teams of golfers from across the globe, which is scheduled to take place during July 2009. MR will offer accommodation for each of the five nights on which guests would require accommodation.

The following information is available regarding the period of the tournament:

(1) Hotel data:

Total rooms 2,400

Room mix:

Double rooms 75%

Single rooms 15%

Family rooms 10%

Fee per room per night ($):

Double rooms 400

Single rooms 300

Family rooms 600

Number of guests per room:

Double rooms 2

Single rooms 1

Family rooms 4

When occupied, all rooms will contain the number of guests as above.


Variable cost per guest per night $100

Attributable fixed costs for the five-day period:

Double rooms $516,000

Single and family rooms (total) $300,000

(2) Accommodation for guests is provided on an all-inclusive basis (meals, drinks, entertainment etc).

(3) The objective of the hotel management is to maximise profit.

(4) The hotel management expect all single and family rooms to be ‘sold out’ for each of the five nights of the

tournament. However, they are unsure whether the fee in respect of double rooms should be increased or

decreased. At a price of $400 per room per night they expect an occupancy rate of 80% of available double

rooms. For each $10 increase/decrease they expect the number of rooms to decrease/increase by 40.


(a) (i) Calculate the profit-maximising fee per double room that MR should charge per night during the

tournament; (6 marks)

(ii) Calculate how much profit would be earned from staging the tournament as a consequence of charging

that fee. (4 marks)

(b) The management of the hotel are concerned by the level of variable costs per guest night to be incurred in respect of the tournament. A recent review of proposed operational activities has concluded that variable cost per guest per night in all rooms in the hotel would be reduced by 20% if proposed changes in operational activities were made. However, this would result in additional attributable fixed costs amounting to $200,000 in respect of the five day period.


Advise management whether, on purely financial grounds, they should make the proposed changes in

operational activities. (6 marks)

(c) Discuss TWO initiatives that management might consider in order to further improve the profit from staging the golf tournament. (4 marks)


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Culam Mining (Culam) is a mineral ore mining business in the country of Teeland. It owns a

Culam Mining (Culam) is a mineral ore mining business in the country of Teeland. It owns and operates four mines. A mine takes on average two years to develop before it can produce ore and the revenue from the mine is split (25:75) between selling the ore under fixed price contracts over five years and selling on the spot market. The bulk of the business’s production is exported. A mine has an average working life of about 20 years before all the profitable ore is extracted. It then takes a year to decommission the site and return the land to a useable form. for agriculture or other developments.

Recently, one of Culam’s foreign competitors surprised the market by becoming insolvent as a result of paying too much to acquire a competitor when the selling price of their minerals dipped as the world economy went into recession. As a result, the chief executive officer (CEO) wanted to know if this was likely to happen to Culam. She had read about the Altman Z-score as a way of predicting corporate failure and had a business analyst prepare a report calculating the Z-score for Culam. The report is summarised below:

Analyst’s Report (extract)

The Altman Z-score model is:

Z = 1·2X1 + 1·4X2 + 3·3X3 + 0·6X4 + X5

Another quantitative model (Q-score model) has been produced by academics working at Teeland’s main university based on recent data from listed companies on the small Teeland stock exchange. It is:

Q = 1·4X1 + 3·3X3 + 0·5X4 + 1·1X5 + 1·7X6

Where for both models:

X1 is working capital/total assets;

X2 is retained earnings reserve/total assets;

X3 is profit before interest and tax/total assets;

X4 is market value of equity/total long-term debt (MVe/total long-term debt);

X5 is revenue/total assets; and

X6 is current assets/current liabilities.

Using the most recent figures from Culam’s financial statements (year ending September 2014), Culam’s Altman Z-score is 3·5 and its score from the other model (Q) is 3·1.

For both models, a score of more than 3 (for Z or Q) is considered safe and at below 1·8, the company is at risk of failure in the next two years.

The analyst had done what was asked and calculated the score but had not explained what it meant or what action should be taken as a result. Therefore, the CEO has turned to you to help her to make sense of this work and for advice about how to use the information and how Culam should proceed into the future.


(a) Evaluate both the result of the analyst’s calculations and the appropriateness of these two models for Culam. (10 marks)

(b) Explain the potential effects of a mine’s lifecycle on Culam’s Z-score and the company’s probability of failure. Note: You should ignore its effect on the Q-score. (7 marks)

(c) Give four detailed recommendations to reduce the probability of failure of Culam, providing suitable justifications for your advice. (8 marks)


(a) The senior management of Universal University (UU) intend to develop both quantitative

(a) The senior management of Universal University (UU) intend to develop both quantitative and qualitative

measures of performance in relation to lecturing staff.

As part of UU’s mission to provide ‘quality education’ to its students, lecturers are encouraged to apply their skill and judgement in the creation, delivery and assessment aspects of the learning process.

Academic staff are organised on a departmental basis. Each department is expected to achieve and improve on targets in the achievement of its role. As part of their development both personally and as departmental members, staff are encouraged to participate fully in research publication, new course design and innovation in teaching and learning methods.

Academic staff have differing views on whether action on their part in pursuing aspects of such goals is

compatible with their personal goals.


Using the above scenario, discuss in relation to the lecturing staff within (UU) each of the following:

(i) The application of Agency Theory to staff, in their role as agents and provide examples of the

observability of their role in relation to outcomes and effort;

(ii) The application of Expectancy Theory with specific reference to the relationship between:

– strength of motivation to do (X);

– strength of preference for outcome (Y);

– expectation that doing (X) will result in (Y). (12 marks)

(b) ‘Hard Accountability’ is deemed to apply to lecturing staff in each of three specific areas as follows:

(i) accounting for the numbers;

(ii) ensuring the numbers are accounted for;

(iii) being held accountable for events and circumstances leading to the numbers.


Describe how each of the areas (b)(i) to (iii) may be applied at UU and critically evaluate this approach to

performance measurement in the context of the scenario described above. (8 marks)


(b) ‘EAJ’, which commenced trading on 1 June 2003, is a business services group whose cons

(b) ‘EAJ’, which commenced trading on 1 June 2003, is a business services group whose consultants implement

three types of application software packages designed to meet the accounting, distribution and manufacturing

requirements of its clients. Each consultant specialises in the implementation of one type of application software

i.e. accounting, distribution or manufacturing. EAJ does not sell application software packages. EAJ implements

application software packages but clients are responsible for purchasing the packages.

The following information relates to the year ended 31 May 2006.

(1) Each consultation, other than those detailed in notes (4) and (5), is charged at a rate of £700 per day for

new clients and £550 per day for existing clients. Consultants are budgeted to work for 240 days per year.

(2) The consultants are each paid a fixed annual salary of £50,000. In addition they receive a bonus of 40%

of the net value of the fee income generated in excess of budget minus the revenue foregone as a

consequence of undertaking remedial consultations (per notes 5 and 8) based on a ‘notional’ rate of £700

per consultant day. The bonus is shared equally among the consultants employed by EAJ on 31 May in the

year to which the bonus relates.

(3) Other operating expenses (excluding the salaries of the consultants) were budgeted at £3,600,000. The

actual amount incurred was £4,500,000.

(4) In an attempt to gain new business, consultants may undertake consultations on a ‘no-fee’ basis. Such

consultations are regarded as business development activity by the management of EAJ. Each of these

consultations is budgeted to take one consultant day.

(5) Consultants will sometimes undertake remedial consultations with new clients who experience problems

with regard to implementation. Remedial consultations are also provided on a non-chargeable, i.e. ‘no fee’

basis. Each of these consultations requires two consultant days.

(6) Since its formation EAJ has had a policy of maintaining staff at a level of 100 consultants on an ongoing

basis, irrespective of fluctuations in the level of demand.


Using the above information, analyse and discuss the performance of EAJ for the year ended 31 May 2006

under the following headings:

(i) Financial performance and competitiveness;

(ii) External effectiveness;

(iii) Internal efficiency. (15 marks)


1 The Sentinel Company (TSC) offers a range of door-to-door express delivery services. The

1 The Sentinel Company (TSC) offers a range of door-to-door express delivery services. The company operates using a

network of depots and distribution centres throughout the country of Nickland. The following information is available:

(1) Each depot is solely responsible for all customers within a specified area. It collects goods from customers within

its own area for delivery both within the specific area covered by the depot and elsewhere in Nickland.

(2) Collections made by a depot for delivery outside its own area are forwarded to the depots from which the

deliveries will be made to the customers.

(3) Each depot must therefore integrate its deliveries to customers to include:

(i) goods that it has collected within its own area; and

(ii) goods that are transferred to it from depots within other areas for delivery to customers in its area.

(4) Each depot earns revenue based on the invoiced value of all consignments collected from customers in its area,

regardless of the location of the ultimate distribution depot.

(5) Depot costs comprise all of its own operating costs plus an allocated share of all company costs including

centralised administration services and distribution centre costs.

(6) Bonuses for the management team and all employees at each depot are payable quarterly. The bonus is based

on the achievement of a series of target values by each depot.

(7) Internal benchmarking is used at TSC in order to provide sets of absolute standards that all depots are expected

to attain.

(8) (a) The Appendix shows the target values and the actual values achieved for each of a sample group of four

depots situated in Donatellotown (D), Leonardotown (L), Michaelangelotown (M), and Raphaeltown (R).

(b) The target values focus on three areas:

(i) depot revenue and profitability;

(ii) customer care and service delivery; and

(iii) credit control and administrative efficiency.

(c) The bonus is based on a points system, which is also used as a guide to the operational effectiveness at

each depot. One point is allocated where the target value for each item in the Appendix is either achieved

or exceeded, and a zero score where the target is not achieved.

Note: TSC operates all year round.



(a) Prepare a report for the directors of TSC which:

(i) contains a summary table which shows the points gained (or forfeited) by each depot. The points table

should facilitate the ranking of each depot against the others for each of the 12 measures provided in

the Appendix. (9 marks)


1 Wonderland plc, which is based in Robynland, owns Cinola Island which is located off the

1 Wonderland plc, which is based in Robynland, owns Cinola Island which is located off the coast of Robynland. On

Cinola Island, Wonderland plc operates a circus and zoological gardens (zoo) both of which are open for 365 days

per annum. The circus, which is widely regarded as the best in the world, can accommodate a maximum of 14,000

visitors per day. The zoological gardens, which opened on 1 December 1999, can accommodate a maximum of

20,000 visitors per day. Visitors travel to and from Cinola Island using petrol-driven ferries owned by Wonderland plc.

There is no other mode of transport to and from Cinola Island.

The following information is available in respect of the year ended 30 November 2006 and the year ending

30 November 2007.

(1) The zoo and circus were open on each day of the year. The circus performed once per day and was always

operated at maximum capacity.

(2) Three types of ticket were sold as follows:

Note: The petrol-driven ferries were fully depreciated as at 1 December 2006.

(7) Wonderland plc received an annual fee of £10 million from an International media group under a fixed-term

contract of three years’ duration. The contract commenced on 1 December 2005 and relates to the rights to

televise programmes which were filmed in the zoo and therefore the fee should be regarded as relating to the


(8) Admission fees to the zoo and circus will be increased by 5% with effect from 1 December 2006. Transport fees

will remain unchanged.

(9) It is anticipated that all operating costs will increase by 4% per annum due to the impact of inflation during the

year ending 30 November 2007.

(10) The management of Wonderland plc expect that the number of visitors, visitor mix and ticket mix will remain

unchanged during the year ending 30 November 2007.

(11) Ignore taxation.


(a) Prepare the budgeted profit and loss account for Wonderland plc for the year ending 30 November 2007.

(9 marks)


4 Healthfoods Ltd (HFL) is a well-established company which markets fruit and vegetables u

4 Healthfoods Ltd (HFL) is a well-established company which markets fruit and vegetables under their ‘Good Health’

brand name at each of its 6 outlets in the country of Ateland. During recent years HFL has marketed organically grown

fruit and vegetables. The directors are now planning to market organic mushrooms which have a unique eating quality

and will be the most nutritious mushrooms available on the market.

The finance director has collated the following information regarding the proposed introduction and sale of organic

mushrooms within Ateland:

(1) HFL will purchase the organic mushrooms from Orgmush Ltd (OML) and sell them at each of its 6 outlets within

Ateland. Sales volumes of organic mushrooms are expected to be at the same level at each outlet.

(2) OML, which is the only grower of this particular type of organic mushroom within Ateland, has offered HFL a

choice of four different contracts in respect of the forthcoming year. OML has the capacity to produce 360,000

kilograms of organic mushrooms for each of the 6 outlets.

The cost incurred by HFL in respect of organic mushrooms will vary according to contract size, as shown in the

following table:


4 Diverse Holdings Plc has five wholly-owned subsidiary companies. These are:(i) Organic F

4 Diverse Holdings Plc has five wholly-owned subsidiary companies. These are:

(i) Organic Foods Ltd (OFL) which is involved in the production and sale of organically grown fruit and vegetables.

OFL has built up a very good reputation as a supplier of quality produce.

(ii) Haul-Trans Ltd (HTL) which was acquired on 1 December 2005 and is involved in transporting a range of

products on behalf of third parties.

(iii) Kitchen Appliances Ltd (KAL) which is involved in the manufacture and sale of small, manually-operated kitchen

appliances. KAL has recently suffered from squeezed margins as a consequence of competition from low cost


(iv) Paper Supplies Ltd (PSL) which manufactures and sells a narrow range of stationery products to two distributors.

(v) Office Products Ltd (OPL) which manufactures and sells computer workstations with unique design features

which are highly regarded by health and safety experts.

The management accountant of Diverse Holdings Plc has gathered the following actual and forecast information

relating to the five subsidiaries:


(a) Identify and comment on FOUR advantages that may be gained as a result of the adoption of a formal system

of strategic planning. (4 marks)


4 GMB Co designs, produces and sells a number of products. Functions are recognised from d

4 GMB Co designs, produces and sells a number of products. Functions are recognised from design through to the

distribution of products. Within each function, a number of activities may be distinguished and a principal driver

identified for each activity.

Each sales order will normally comprise a number of batches of any one of a range of products. The company is active

in promoting, where possible, a product focus for design, dedicated production lines and product marketing. It also

recognises that a considerable level of expenditure will relate to supporting the overall business operation.

It is known that many costs may initially be recognised at the unit, batch, product sustaining (order) or

business/facility sustaining (overall) levels. A list of expense items relating to Order Number 377 of product Zeta is

shown below. The methods of calculating the values for Order Number 377 shown below are given in brackets

alongside each expense item. These methods also indicate whether the expense items should be regarded as product

unit, batch, product sustaining (order) or business/facility sustaining (overall) level costs. The expense items are not

listed in any particular sequence. Each expense item should be adjusted to reflect its total cost for

Order Number 377.

Order Number 377 comprises 5,000 units of product Zeta. The order will be provided in batches of 1,000 product



4 The Dental Health Partnership was established in 1992 and provides dentistry and other r

4 The Dental Health Partnership was established in 1992 and provides dentistry and other related services to the

population of Blaintopia, a country in which the public health service is partially funded by the Government.

Additional information relating to the Dental Health Partnership for the year ended 31 May 2005 is as follows:

(1) The partnership was open for five days per week during 48 weeks of the year.

(2) Each dentist treated 20 patients per day. The maximum number of patients that could have been treated by a

dentist on any working day was 24 patients.

(3) (i) The partnership received a payment from the government each time any patient was consulted as shown in

the following table:


(a) Prepare a summary Profit and Loss Account of the Dental Health Partnership for the year ended

31 May 2005 and calculate the percentage of maximum capacity that was required to be utilised in order

to break even in the year ended 31 May 2005. (12 marks)


2 The Superior Software House (SSH) commenced trading on 1 December 2002 in the country of

2 The Superior Software House (SSH) commenced trading on 1 December 2002 in the country of Bonlandia. SSH

develops bespoke software packages on behalf of clients. When requested to do so, SSH also provides training to

clients’ staff in the use of these software packages. On 1 December 2006, the directors of SSH established a similar

semi-autonomous operation in Karendia. All software packages are produced in Bonlandia and transferred to Karendia

at cost plus attributable overheads i.e. there is no mark-up on the software packages transferred from Bonlandia to


Karendia is a country in which the structure of industry has changed during recent years. There has been a major

shift from traditional manufacturing businesses to service orientated businesses which place a far greater emphasis

upon the use of business software.

The operational managers in both Bonlandia and Karendia have no control over company policies in respect of

acquisitions and financing.

The operational manager of Bonlandia receives a bonus of 40% of his basic salary for meeting all client delivery

deadlines in respect of Karendia. At a recent meeting he instructed his staff to ‘install client software by the due date

and we’ll worry about fixing any software problems after it’s been installed. After all, we always fix software problems

eventually’. He also stated that ‘it is of vital importance that we grow our revenues in Karendia as quickly as possible.

Our clients in Karendia might complain but they have spent a lot of money on our software products and will not be

able to go to any of our competitors once we have installed our software as all their businesses would suffer huge


Financial data (all stated on an actual basis) in respect of the two divisions for the two years ended 30 November

2007 and 2008 are shown on the next page:


(a) Assess the financial performance of SSH and its operations in Bonlandia and Karendia during the years

ended 30 November 2007 and 2008.

Note: you should highlight additional information that would be required in order to provide a more

comprehensive assessment of the financial performance of each operation. (14 marks)




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