Question

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: Revenues Expenses Budget MYR 12,000,000 9,000,000 Actual MYR 11,000,000 9,000,000 Current year actual and projected exchange rates between the New Zealand dollar (NZD) and the Malaysian ringgit (MYR) are as follows: Actual at time of budget preparation Projected ending at time of budget preparation Actual at end of budget period NZD 0.312 per MYR 1 NZD 0.340 per MYR 1 NZD 0.357 per MYR 1 Required: Calculate the total budget variance for the current year using the exchange rate that exists at the time the budget is prepared. Required: Calculate the total budget variance for the current year using the exchange rate that exists at the end of the budget period. Required: Calculate the total budget variance for the current year using a projected exchange rate (projected at the time the budget is prepared).

Answer 1

Solution:
1. Budget Variance using exchange rate at the time of preparation of budget
	Budget	Actual	Variance	Exchange Rate	Variance in NZD
	MYR	MYR
Revenue	12000000	11000000	-1000000	0.312	-312000
Expenses	9000000	9000000	0	0.312	0
Profit	3000000	2000000	-1000000	0.312	-312000
Actual are unfavourable by NZD 312000
2. Budget Variance using exchange rate at the end of the year
	Budget	Actual	Variance	Exchange Rate	Variance in NZD
	MYR	MYR
Revenue	12000000	11000000	-1000000	0.357	-357000
Expenses	9000000	9000000	0	0.357	0
Profit	3000000	2000000	-1000000	0.357	-357000
Actual are unfavourable by NZD 357000
3. Budget Variance using exchange rate projected at the time of budget
	Budget	Actual	Variance	Exchange Rate	Variance in NZD
	MYR	MYR
Revenue	12000000	11000000	-1000000	0.34	-340000
Expenses	9000000	9000000	0	0.34	0
Profit	3000000	2000000	-1000000	0.34	-340000
Actual are unfavourable by NZD 340000