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 Zealand dollars (NZD). Relevant information in Malaysian ringgit (MYR) for the current year is as follows:

	Budget	Actual
Revenues	MYR 12,000,000	MR 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 time of budget preparation	NZD 0.312 per MYR 1
Projected ending at time preparation of budget	NZD 0.340 per MYR 1
Actual at tned of budget period	NZD 0.357 per MYR 1

Required:

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.

B. Make a recommendation to All Kiwis 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.

C. Make a recommendation to All Kiwis 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.

Figure 10.10

EXHIBIT 10.10 Combinations for Translation of Budget and Actual Results Source: D. R. Lessard and P. Lorange, "Currency Changes and Management Control: Resolving the Centralization/Decentralization Dilemma," Accounting Review, July 1977, pp. 628-37. Rate Used to Track Actual Performance Relative to Budget Actual at TOB Projected at TOB Actual at EOP n/a Rate Used for Determining Budget Actual at time of budget (TOB)...... Projected at time of budget. Actual at end of period (EOP)........ n/a n/a n/a