Solved: To encourage its foreign managers to incorporate

expected exchan
To encourage its foreign managers to incorporate expected exchan

To encourage its foreign managers to incorporate expected exchange rate changes into their
operating decisions, Vancouver Enterprises requires that all foreign currency budgets be set in
Canadian dollars using exchange rates projected for the end of the budget period. To further
motivate its local managers to react to unexpected rate changes, operating results at period’s
end are translated to dollars at the actual spot rate prevailing at that time. Deviations between
actual and budgeted exchange rates are discarded in judging the manager’s performance. At
the start of the 2010 fiscal year, budgeted results for a Mexican affiliate, the Cuernavaca
Corporation, were as follows (amounts in thousands):

Actual results for the year in dollars were: sales, CAD2,160,000; expenses, CAD1,680,000; and
net income, CAD480,000. Relevant exchange rates for the peso during the year were as
follows:
Jan. 1, 2010 spot rate: .......... CAD.00040
Global Enterprise’s one-year forecast .... CAD.00032
Dec. 31, 2010 spot rate .......... CAD.00024

Required:
Based on the foregoing information, did the Mexican manager perform well? Support your
answer using the variance analysis suggested in the chapter. (Refer to Exhibit10-6.)

To encourage its foreign managers to incorporate expected exchan

ANSWER
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