Question

need A,B,C please

3. All Kiwi Ltd. (a New Zealand-based company) has a wholly-owned subsidiary in Malaysia whose manager is being evaluated on the basis of the variance between actual profit and budgeted profit in New page 434 Zealand dollars (NZD). Relevant information in Malaysian ringgit (MYR) for the current year is as follows: Budget Actual Revenues MYR 12,000,000 MYR 11,000,000 Expenses 9,000,000 9,000,000 Current year actual and projected exchange rates between the NZD and the MYR are as follows: Actual at NZD 0.312 per MYR 1 budget preparation Projected ending at NZD time of 0.340 budget preparation MYR 1 per Actual at end of budget period NZD 0.357 per MYR 1

ok

Answer 1

(A) Calculate the total budget variance for the current year using each of the five combinations
of exchange rates for translating budgeted and actual results shown in Exhibit 10.10.

Combinaton 4 Actual Budget Budget Actual Budget Actual Actual Actual Budget Budget 0.312 0.34 0.312 0.357 Exchange Rate 0.312 0.357 0.357 0.34 0.34 0.357 3,744,000 3,432,000 4,080,000 3,927,000 4,080,000 3,740,000 Revenue 4,284,000 3,927,000 3,744,000 3,927,000 3,060,000 3,060,000 2,808,000 2,808,000 Expenses 3,213,000 3,213,000 2,808,000 3,213,000 3,060,000 3,213,000 Proft 936,000 624,000 1,071,000 714,000 936,000 1,020,000 714,000 1,020,000 680,000 714,000 Variance 312,000 357,000 306,000 340,000 222,000

(B) Make a recommendation to All Kiwi’s corporate management as to which combination in
item (a) should be used, assuming that the manager of the Malaysian subsidiary does not
have the authority to hedge against changes in exchange rates

Answer : If they cannot hedge, then I would recommend that All Kiwi’s corporate management choose
combination #4 in this case as it provides the lowest variance between Actual and Budgeted profit,
showing that it is the most accurate combination of the 5.

(C) Make a recommendation to All Kiwi’s corporate management as to which combination in
item (a) should be used, assuming that the manager of the Malaysian subsidiary has the
authority to hedge against unexpected changes in exchange rates.

Answer: If they can hedge, then I would recommend that All Kiwi’s corporate management choose
combination #2, as this offers the highest budgeted and actual profit levels, and so, with an effective
hedging strategy, the final profit will end up being the greatest out of the 5 combinations.