Viking Corporation (a U.S.-based company) has a subsidiary in Japan that imports finished products from unrelated suppliers in China and sells all of its purchases to customers in Japan. Cost of goods sold represents 75 percent of total costs. Budgets in Japanese yen (JPY) and U.S. dollars (USD) using the beginning of period exchange rate of USD 0.010 per JPY 1.00 are as follows:
During the budget period, the JPY decreased in value by 20 percent against world currencies, such that the end-of-period exchange rate was USD 0.008 per JPY 1.00. As a result of the increased cost of imports, the manager of the Japanese subsidiary switched to purchasing some of the goods it sells from Japanese manufacturers. Assuming that Viking uses the end-of-period exchange rate to track actual performance, actual results in JPY and USD are as follows:
As a result, there is an unfavorable total
Required:
- a. Determine the amount of the USD 320,000 unfavorable total budget variance caused by the change in the USD/JPY exchange rate.
- b. Taking economic exposure to foreign exchange risk into consideration, estimate what profit would have been (in both JPY and USD) if the Japanese subsidiary’s manager had not taken advantage of the decrease in value of the JPY.
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International Accounting
- A company manufactures a product in the United States and sells it in England. The unit cost of manufacturing is $52. The current exchange rate (dollars per pound) is 1.213. The demand function, which indicates how many units the company can sell in England as a function of price (in pounds) is of the power type, with constant 27556733 and exponent -2.5. A) Develop a model for the company's profit (in dollars) as a function of the price it charges (in pounds). Then use a data table to find the profit-maximizing price to the nearest pound. Assume that the price ranges from £45 to £100 in increments of £1. Round your answer for the maximum profit to the nearest dollar and your answer for the best price to the nearest pound. 1. Maximum profit: $______ 2. Best price: £ ______arrow_forwardThe Japanese yen increases in value relative to the dollar, moving from 120 yento 110 yen to each U.S. dollar. From the perspective of a U.S. firm that produces in the UnitedStates and exports its product to sell in Japan:a. This is bad news.b. It doesn’t matter.c. This is good newsarrow_forwardVoltac Corporation (a U.S.-based company) has the following import/export transactions denominated in Mexican pesos in 2020: March 1 Bought inventory costing 119,000 pesos on credit. May 1 Sold 60 percent of the inventory for 99,000 pesos on credit. August 1 Collected 79,500 pesos from customers. September 1 Paid 69,500 pesos to suppliers. Currency exchange rates for 1 peso for 2020 are as follows: Date U.S. Dollar per Peso March 1 $ 0.17 May 1 0.18 August 1 0.19 September 1 0.20 December 31 0.21 Assume that all receipts were converted into dollars as soon as they were received. Voltac will report each of the following accounts on its 2020 financial statements. Inventory $8,092 Cost of goods sold $12,138 Sales $17,820 Accounts receivable $4,095 Accounts payable $10,395 Cash $1,205 What are the corresponding journal entries?arrow_forward
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT