Question

Budget profit in foreign currency (FC) = 7,400;   Actual profit in FC = 8,200

Exchange rate FC into U.S. dollars (USD): Beginning of year = 0.62; End of year = 0.69

(a) What is the total budget variance in USD? You must state favorable or unfavorable.

(b) How much of the total budget variance is due to exchange rates based on beginning of the year rates? State favorable or unfavorable.

(c) How much of the total budget variance is due to exchange rates based on end of the year rates. State favorable or unfavorable.

Answer 1

A) Budget Profit in Foreign Currency = 7,400

Actual profit in Foreign Currency = 8,200

Exchange Rate FC into USD:- Beginning of Year = 0.62

End of the Year = 0.69

Total Budget Variance = (8200*0.69) - (7400*0.62)

= 5,658 - 4,588

= $1,070/- Favourable

B) Total budget variance is due to exchange rates based on beginning of the year rates :-

Budget Variance (Based on beginning of the year rate)

= (Actual Profit*Beginning exchange rate) - (Budget Profit*Beginning exchange rate)

= (8200*0.62) - (7400*0.62)

= $496 Favourable

C) Total budget variance is due to exchange rates based on end of the year rates :-

Budget Variance (Based on end of the year rate )

= (Actual Profit*Year end exchange rate) - (Budget Profit*Year end exchange rate)

= (8200*0.69) -(7400*0.69)

= $552 Favourable