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The assignment includes a set of multiple-choice questions covering topics related to international trade, economic indicators, currency exchange, international financial institutions, and cost variance analysis for a manufacturing company. Additionally, there are detailed variance calculation problems regarding materials, labor, and overhead costs for Barley Hopp, Inc., asking to compute price, quantity, rate, efficiency, and spending variances based on given standard and actual data.
The core tasks are:
- Answer multiple-choice questions about international economics and finance.
- Perform variance analysis calculations for direct materials, direct labor, and variable overhead costs for Barley Hopp, Inc.
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Sample Paper For Above instruction
Introduction
Understanding international trade principles, currency exchange mechanisms, and cost variance analysis are essential components of managerial and international business studies. This paper aims to explore foundational concepts related to these topics through detailed responses to multiple-choice questions and practical application of variance analysis calculations in manufacturing, specifically for Barley Hopp, Inc.
Part 1: Multiple-Choice Questions on International Trade and Finance
The initial questions evaluate knowledge of key international financial institutions, trade measures, inflation calculation, balance of payments, monetary standards, exchange rate determination, and currency hedging mechanisms. For example, the World Trade Organization (WTO) was created to facilitate trade negotiations and resolve trade disputes between nations (World Trade Organization, 1995). This aligns with question 1, which asks about a forum designed for trade discussion and dispute resolution; thus, the answer is a. World Trade Organization.
Gross domestic product (GDP), which measures the total value of all goods and services produced within a country, is central to understanding economic activity (Mankiw, 2014). The inflation rate, calculated between 2005 and 2006 based on Consumer Price Index (CPI), provides insights into the change in price levels; using the CPI values (112 and 118), the approximate inflation rate is ((118-112)/112) * 100 ≈ 5.36%, matching answer a.
Regarding the international investment position, it captures the net value of a country's foreign assets and liabilities (Schmidt & Taby, 2014). Different options are plausible, but the precise definition aligns with option c, the total value of foreign assets held by residents.
The rules of the gold standard involved fixing a country's currency value to a specific weight of gold (O'Connell, 2014), as reflected in question 5. When both Mexico and Canada fixed their currencies to gold at different rates, the exchange rate was derived from the ratio of their gold prices: 280 pesos / C$25 per ounce, leading to about 11.20 pesos per C$.
The International Chamber of Commerce's (ICC) core activities include providing practical services to businesses, advocating for international commerce, fighting commercial crime, and spreading business expertise, which collectively are summarized as e. All of the above (ICC, 2020). Increased trade imbalances and currency devaluations have historically led to currency volatility, particularly during the early 20th century, aligning with answer c.
The spot exchange rate is the current rate at which currencies are exchanged immediately (Madura, 2019). This is the definition for question 9, making option a correct. Companies hedge against currency risks using a variety of instruments, including currency options and forward contracts, thus the comprehensive answer is d. All of the above.
Part 2: Variance Analysis of Barley Hopp, Inc.
For Barley Hopp, Inc., detailed calculations follow standard variance analysis procedures:
Direct Materials Variances
- Standard cost per unit = 1.60 lbs × $1.70 = $2.72
- Actual cost = $572,760 / 318,200 lbs ≈ $1.80 per lb
Price Variance:
= (Actual Price - Standard Price) × Actual Quantity
= ($1.80 - $1.70) × 318,200 ≈ $31,820 Unfavorable
Quantity Variance:
= (Actual Quantity - Standard Quantity) × Standard Price
= (318,200 lbs - 1.60 lbs × 175,000 units)
= (318,200 - 280,000) × $1.70
= 38,200 × $1.70 ≈ $64,940 Unfavorable
Total Spending Variance:
= Price Variance + Quantity Variance
≈ $31,820 + $64,940 ≈ $96,760 Unfavorable
Direct Labor Variances
- Standard cost per unit: 1.60 hrs × $16 = $25.60
- Actual labor hourly rate: $4,510,000 / 220,000 hrs = $20.50/hr
Rate Variance:
= (Actual Rate - Standard Rate) × Actual Hours
= ($20.50 - $16) × 220,000 ≈ $990,000 Unfavorable
Efficiency Variance:
= (Actual Hours - Standard Hours) × Standard Rate
= (220,000 hrs - 1.60 hrs × 175,000 units)
= (220,000 - 280,000) hrs
= -60,000 hrs (favorable, as actual hours are less)
= -60,000 × $16 = -$960,000 Favorable
Total Spending Variance:
= Rate Variance + Efficiency Variance
≈ $990,000 (U) + (-$960,000) (F) ≈ $30,000 Unfavorable
Variable Overhead Variances
- Standard variable overhead per unit: 1.60 hrs × $1.30 = $2.08
- Actual variable overhead cost: $340,000
- Actual hours (assumed same as labor hours): 220,000 hrs
Rate Variance:
= (Actual Rate - Standard Rate) × Actual Hours
= ($340,000 / 220,000 hrs - $1.30) × 220,000 hrs
= ($1.55 - $1.30) × 220,000 ≈ $49,000 Unfavorable
Efficiency Variance:
= (Actual Hours - Standard Hours) × Standard Rate
= (220,000 hrs - 280,000 hrs)
= -60,000 hrs (favorable)
= -60,000 × $1.30 = -$78,000 Favorable
Total Spending Variance:
= $49,000 (U) + (-$78,000) (F) ≈ -$29,000 Favorable
These variances provide insights into cost management efficacy and areas needing operational efficiency improvements.
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Conclusion
This comprehensive analysis has addressed fundamental international economics questions and provided detailed calculations vital for managerial decision-making. Understanding trade institutions, inflation measures, currency exchange, and hedging mechanisms underpins global economic comprehension. Simultaneously, mastery of variance analysis allows companies to control costs effectively, identify inefficiencies, and enhance profitability.
References
- International Chamber of Commerce. (2020). ICC Core Activities. Retrieved from https://iccwbo.org
- Mankiw, N. G. (2014). Principles of Economics (7th ed.). Cengage Learning.
- Madura, J. (2019). International Financial Management (13th ed.). Cengage Learning.
- O'Connell, M. (2014). The Gold Standard and its Discontents. Journal of Economic Perspectives, 28(2), 69-88.
- Schmidt, D., & Taby, R. (2014). Balance of Payments and International Investment Position. Finance & Development, 51(4), 50-51.
- World Trade Organization. (1995). Agreement Establishing the World Trade Organization. WTO Publications.