Assume You Manage a Firm That Faces Transaction Exposure

question 10

Multiple Choice

Assume you manage a firm that faces transaction exposure.Your company manufactures and sells bicycles around the world.You have just completed a large sale of bicycles to a chain of stores in Australia and received a promised payment of 300 AUD per bicycle.You have already sold 5,000 bicycles and are now awaiting payment which you expect to receive in 90 days.The exchange rate today is 1.30 AUD per USD.Over the next ninety days,the indirect exchange rate unexpectedly moves from 1.30 AUD to 1.25 AUD.What is the increase in domestic revenue due to this unexpected move in the exchange rate?

• A)$58,239
• B)$52,589
• C)$46,154
• D)$38,496

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Definitions:

Variable Manufacturing Overhead

The portion of manufacturing overhead costs that varies directly with production volume, such as utilities or raw materials.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or job orders, calculated before the period begins based on estimated overhead costs and an allocation base.

Direct Labor-Hours

The total hours worked by employees directly involved in the production of goods or services.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, such as maintenance, utilities, and quality control.