Question

Imogdi Corporation (a U.S-based company) has a wholly-owned subsidiary in Argentina, whose manager is being evaluated on the basis of the variance between actual profit and budgeted profit in U.S. dollars. Relevant information in Argentine pesos (ARS) for the current year is as follows:(in ARS) Budget ActualRevunues 40,000,000 50,000,000Expenses 30,000,000 42,000,000Current year actual and projected exchange rates between the ARS and the U.S. dollar (USD) are as follows: Actual at time of Budget USD 0.063 per ARS 1Project ending at the time of budget preparation USD 0.058 per ARS 1Actual at the end of budget period USD 0.056 per ARS 1Required:Calculate the total budget variance for the current year translating the budget at the initial exchange rate and translate actual results using the ending exchange rate.

Answer 1

Answer:

$ 182,000

Explanation:

the explanation is shown in the attached file

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Answer 2

Answer:

Initial exchange rate Variance = $1 820 000

Ending exchange rate Variance = $1 320 000

Explanation:

In order to find the variance between the budgeted and the actual profits we have to find the Budgeted Profits and the Actual profits

Budgeted profits = budgeted revenue - budgeted expenses

                              =40 000 000 - 30 000 000

                               =10 000 000

Actual profits = actual revenue - actual expenses

                      = 50 000 000 - 42 000 000

                       = 8 000 000

These profits are in Argentina pesos and we have to convert to USD

at the beginning of the budget the exchange rate  USD 0.63 per ARS for budgeted and 0.56  in actual

Budgeted profit = 10 000 000 * 0.63 = $6 300 000

Actual Profit  = 8 000 000 * 0.56 = $4 480 000

Total budget Variance in USD = 6 300 000 - 4 480 000 = $1 820 000

At year end exchange for the rate for the budgeted USD 0.58 per ARS

Budgeted profit = 10 000 000 * 0.58= $5 800 000

Actual Profit  = 8 000 000 * 0.56 = $4 480 000

Total Budgeted Variance in USD = 5 800 000- 4 480 000 = $1 320 000