Exhibit 1 below shows the budgeted actual condensed income statements for FC Company at the start and end of 20X8 budget year. The profit plan for the year (expressed in parent company GAAP) is translated to parent currency at the beginning of period exchange rate of FC 1 = PC 1. The foreign currency devalues by 20 percent by year-end. The company employs the FIFO costing method. Actual sales increased by 300 units from 1000 to 1300 units during the year at a price of FC5.00, FC1.00 lower than that expected. A performance report submitted to the parent company (PC company), breaking out price-, volume-, and exchange-rate-induced variances appears in Exhibit 2.

Based on the information given in the performance report, did the FC Company manager perform well? Support your answer using the variance analysis methods in Chapter 10. (Variance analysis is already shown in Exhibit 2).

Chapter 10 foreign exchange variance anaylsis is based on standard costing concept in which standard to actual is compared. "From the perspective of the foreign affiliate, performance variances are measured in local currency and reflect the difference between budget and actual figures for each item in the income statement."

Exhbit 1: Income Statement Budget (FC) Actual (FC) Revenues Cost of Inventory Beginning Invento 6,000 6,500 1,800 2,880 4,680 1,080 1,800 3,000 4,800 +Production Goods Available for Sales Ending Invento Cost of Goods Sold Gross Margin 3,600 2,400 3,900 2,600 950 -Operating Expenses Depreciation Interest 300 350 Operating Income Exhibit 2: Performance Report FC Company Budget change rate of FC 1-P Actual Variance FC FX PC FC PC 0.8 (5,200) 500 (800) Revenues Cost of Invento Beginning Invento 6,000 6,000 (6,500) +Production Goods Available for Sales (1,800) (1,800)(1,800) 3,000 (4,680) (4,680(4,800) 1.0 1,800) 0.8 (2,400 (4,200) 2,880 2,880 480 120 480) (180) (360) 120 200 (680) (50) (140) Ending Invento Cost of Goods Sold Gross Margin 1,080 1,080 3,600 2,400 2,400 0.8 3,600 3,900 2,600 (950) (600) 350 3,480 1,720 0.8 (760) 1.0 (600) 280 80 300 -Operating Expenses Depreciation Interest (900 (600) (600) 300 300 0.8 50 Operating Income 100 (520)