Question

A, B AND C PLEASE

3. 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 page 434 Zealand dollars (NZD). Relevant information in Malaysian ringgit (MYR) for the current year is as follows: Budget Actual MYR 12,000,000 MYR 11,000,000 Revenues 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 NZD time of 0.312 budget preparation MYR 1 per Projected ending at time of budget preparation NZD 0.340 per MYR 1 NZD 0.357 Actual at end of budget period per MYR 1 Required:

Answer 1

All Kiwi Ltd. Requirement a 1. 4 Actual Budget Actual Budget Actual Budget Budget Budget Actual Actual Exchange Rate 0.312 0.312 0.312 0.357 0.357 0.34 0.34 0.357 0.34 0.357 3432000 3927000 3740000 Revenue 3744000 4284000 4080000 3744000 3927000 4080000 3927000 2808000 Expenses 2808000 2808000 3213000 3213000 3060000 3060000 3213000 3060000 3213000 Profit 624000 714000 1020000 680000 936000 936000 1071000 714000 1020000 714000 Variance 312000 357000 340000 222000 306000 Requirement b If they cannot hedge, then I would recommend that All Kiwi's corporate management choose combination #4 in this case as it provides the lowest variance between Actual and Budgeted profit, showing that it is the most accurate combination of the 5. Requirement c If they can hedge, then I would recommend that All Kiwi's corporate management choose combination #2, as this offers the highest budgeted and actual profit levels, and so, with an effective hedging strategy, the final profit will end up being the greatest out of the 5 combinations.