Solutions Manual
Managerial Accounting
Eighth Edition
Don R. Hansen
Maryanne M. Mowen
All Chapters 1-18 Arranged Reverse: 18-1
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed
without the prior consent of the publisher.
, CHAPTER 18
INTERNATIONAL ISSUES IN
MANAGEMENT ACCOUNTING
QUESTIONS FOR WRITING AND DISCUSSION
1. Differences among countries in terms of the government grants exemptions from or re-
political, legal, and cultural environment can ductions in custom duties levied on reex-
all affect the firm. The management ac- ported goods. Many U.S. firms have em-
countant may find that practices that work braced the maquiladora because of the low-
well in the home country do not work as well cost labor, the flexible ownership structure,
(or at all) in other countries. It is necessary and the opportunity to locate close to an in-
for the management accountant to be aware creasingly important Mexican market.
of all facets of business and to be knowl-
edgeable and creative in applying account- 6. The exchange rate is the amount for which
ing concepts in various business environ- one currency can be traded for another. The
ments. spot rate is the exchange rate in effect at the
current time. There are also future exchange
2. A foreign trade zone is an area that is physi- rates, which describe the rates in effect for
cally on U.S. soil but is considered to be out- future delivery.
side U.S. commerce. As a result, goods im-
ported into a foreign trade zone are free of 7. These three types of risk relate to the impact
tariff or duty until they leave the zone. on the firm of changing exchange rates.
Therefore, companies located in a foreign Transaction risk refers to the possibility that
trade zone can postpone payment of tariff future cash transactions will be affected by
and the associated loss of working capital. changing exchange rates. Economic risk re-
Additionally, the company does not pay duty fers to the possibility that a firm’s present
on defective materials or inventory that has value of future cash flows can be affected by
not been included in the finished product. exchange fluctuations. Translation risk is the
degree to which a firm’s financial statements
3. Outsourcing is the payment by a company are exposed to exchange rate fluctuations.
for a business function that was formerly
done in-house. In an international context, 8. Currency appreciation means that the home
outsourcing refers to the location of busi- country’s currency strengthens against an-
ness functions in another country. Fre- other currency. In other words, one unit of
quently, the work outsourced is to a lower- the home currency purchases more units of
wage country. The company receives a another currency than it did previously. Cur-
comparable quality of work but at a lower rency appreciation makes the products of a
cost. foreign country cheaper than before, and
thus, it is easier for a company in the home
4. Joint ventures are partnerships between two country to import goods.
or more companies. The enterprise is co-
owned. A company may find joint ventures 9. Currency appreciation makes the home
advantageous when another company has country currency more expensive to foreign
expertise that the first company lacks. In customers, thereby making the products of
addition, restrictions by certain countries on the home country firm more expensive than
foreign ownership of business may mean they were before. For example, if the ex-
that a joint venture is the only avenue open change rate is one home country unit to one
to a company wishing to expand into the for- foreign country unit and the currency appre-
eign country. ciates, then the exchange rate might be-
come one home country unit to two foreign
5. Maquiladoras are manufacturing plants lo- units. That is, the home country unit buys
cated in Mexico that process imported mate- more foreign currency as it appreciates. Put
rials and reexport them to the United States. differently, the foreign currency buys less as
Maquiladoras are exempt from Mexican the home country currency appreciates.
laws governing ownership, and the U.S.
601
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
,10. If Mexico devalues the peso, a dollar will and insuring against adverse exchange rate
buy relatively more pesos, making the cost fluctuations.
of Mexican labor cheaper. As the controller,
12. Disagree. The manager of a subsidiary
you will revise your estimates of labor costs
should not be evaluated on the basis of fac-
in the maquiladora downward. The pro-
tors over which he or she has no control.
posed new production facility will be more
These factors may include transfer prices,
attractive.
currency fluctuations, local taxes, and so on.
As a local labor union leader, you would be The subsidiary manager should be evalu-
displeased by the potential devaluation. If ated on the basis of revenues and costs.
Mexican wages go down relative to U.S.
13. Environmental factors that may affect the
wages, Mexican labor will be relatively more
performance of divisional managers include
attractive, and more jobs may be outsourced
economic, legal, political, social, and educa-
to Mexico.
tional variables.
11. Hedging is a way of insuring against gains
14. Internal Revenue Code Section 482 outlines
and losses on foreign currency exchange.
the transfer pricing methods acceptable for
The company that imports the material may
income tax purposes. The four acceptable
be afraid that the exchange rate will change
methods are the comparable uncontrolled
in 90 days and that the home currency will
price method, the resale price method, the
weaken against the foreign currency. In that
cost-plus method, and any method jointly
case, the company may hedge by purchas-
acceptable to the IRS and the company.
ing a forward contract for the foreign cur-
rency, thereby locking in the exchange rate
602
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
, EXERCISES
18–1
Your friend will take the traditional accounting and business courses required for
a major in accounting. Naturally, these would include international business
courses, such as international accounting and international finance. In addition,
she/he would be well advised to take classes relating to other cultures, including
history, philosophy, literature, and foreign language(s). No individual class is
critical; instead, it is the sum of the classes that is important. In other words, your
friend will learn a little about other countries in each class. Over time, that little
bit will add up, giving your friend the background to understand business prac-
tices overseas and to fit business transactions into a cultural context.
Suppose your friend is just about to graduate and cannot afford to spend more
time in college? Then she/he should do what all management accountants need
to do—stay up to date by reading books and articles in a variety of international
business areas, including information systems, marketing, management, politics,
and economics.
Note to Instructors: Your students may want to read Daniel M. Hrisak’s “Global
Challenges Call for More CMAs and CFMs,” Strategic Finance (June 2001): pp.
44–49.
18–2
1. e 4. c
2. b 5. a
3. d
18–3
1. e 4. b
2. c 5. a
3. d
603
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
Managerial Accounting
Eighth Edition
Don R. Hansen
Maryanne M. Mowen
All Chapters 1-18 Arranged Reverse: 18-1
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed
without the prior consent of the publisher.
, CHAPTER 18
INTERNATIONAL ISSUES IN
MANAGEMENT ACCOUNTING
QUESTIONS FOR WRITING AND DISCUSSION
1. Differences among countries in terms of the government grants exemptions from or re-
political, legal, and cultural environment can ductions in custom duties levied on reex-
all affect the firm. The management ac- ported goods. Many U.S. firms have em-
countant may find that practices that work braced the maquiladora because of the low-
well in the home country do not work as well cost labor, the flexible ownership structure,
(or at all) in other countries. It is necessary and the opportunity to locate close to an in-
for the management accountant to be aware creasingly important Mexican market.
of all facets of business and to be knowl-
edgeable and creative in applying account- 6. The exchange rate is the amount for which
ing concepts in various business environ- one currency can be traded for another. The
ments. spot rate is the exchange rate in effect at the
current time. There are also future exchange
2. A foreign trade zone is an area that is physi- rates, which describe the rates in effect for
cally on U.S. soil but is considered to be out- future delivery.
side U.S. commerce. As a result, goods im-
ported into a foreign trade zone are free of 7. These three types of risk relate to the impact
tariff or duty until they leave the zone. on the firm of changing exchange rates.
Therefore, companies located in a foreign Transaction risk refers to the possibility that
trade zone can postpone payment of tariff future cash transactions will be affected by
and the associated loss of working capital. changing exchange rates. Economic risk re-
Additionally, the company does not pay duty fers to the possibility that a firm’s present
on defective materials or inventory that has value of future cash flows can be affected by
not been included in the finished product. exchange fluctuations. Translation risk is the
degree to which a firm’s financial statements
3. Outsourcing is the payment by a company are exposed to exchange rate fluctuations.
for a business function that was formerly
done in-house. In an international context, 8. Currency appreciation means that the home
outsourcing refers to the location of busi- country’s currency strengthens against an-
ness functions in another country. Fre- other currency. In other words, one unit of
quently, the work outsourced is to a lower- the home currency purchases more units of
wage country. The company receives a another currency than it did previously. Cur-
comparable quality of work but at a lower rency appreciation makes the products of a
cost. foreign country cheaper than before, and
thus, it is easier for a company in the home
4. Joint ventures are partnerships between two country to import goods.
or more companies. The enterprise is co-
owned. A company may find joint ventures 9. Currency appreciation makes the home
advantageous when another company has country currency more expensive to foreign
expertise that the first company lacks. In customers, thereby making the products of
addition, restrictions by certain countries on the home country firm more expensive than
foreign ownership of business may mean they were before. For example, if the ex-
that a joint venture is the only avenue open change rate is one home country unit to one
to a company wishing to expand into the for- foreign country unit and the currency appre-
eign country. ciates, then the exchange rate might be-
come one home country unit to two foreign
5. Maquiladoras are manufacturing plants lo- units. That is, the home country unit buys
cated in Mexico that process imported mate- more foreign currency as it appreciates. Put
rials and reexport them to the United States. differently, the foreign currency buys less as
Maquiladoras are exempt from Mexican the home country currency appreciates.
laws governing ownership, and the U.S.
601
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
,10. If Mexico devalues the peso, a dollar will and insuring against adverse exchange rate
buy relatively more pesos, making the cost fluctuations.
of Mexican labor cheaper. As the controller,
12. Disagree. The manager of a subsidiary
you will revise your estimates of labor costs
should not be evaluated on the basis of fac-
in the maquiladora downward. The pro-
tors over which he or she has no control.
posed new production facility will be more
These factors may include transfer prices,
attractive.
currency fluctuations, local taxes, and so on.
As a local labor union leader, you would be The subsidiary manager should be evalu-
displeased by the potential devaluation. If ated on the basis of revenues and costs.
Mexican wages go down relative to U.S.
13. Environmental factors that may affect the
wages, Mexican labor will be relatively more
performance of divisional managers include
attractive, and more jobs may be outsourced
economic, legal, political, social, and educa-
to Mexico.
tional variables.
11. Hedging is a way of insuring against gains
14. Internal Revenue Code Section 482 outlines
and losses on foreign currency exchange.
the transfer pricing methods acceptable for
The company that imports the material may
income tax purposes. The four acceptable
be afraid that the exchange rate will change
methods are the comparable uncontrolled
in 90 days and that the home currency will
price method, the resale price method, the
weaken against the foreign currency. In that
cost-plus method, and any method jointly
case, the company may hedge by purchas-
acceptable to the IRS and the company.
ing a forward contract for the foreign cur-
rency, thereby locking in the exchange rate
602
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
, EXERCISES
18–1
Your friend will take the traditional accounting and business courses required for
a major in accounting. Naturally, these would include international business
courses, such as international accounting and international finance. In addition,
she/he would be well advised to take classes relating to other cultures, including
history, philosophy, literature, and foreign language(s). No individual class is
critical; instead, it is the sum of the classes that is important. In other words, your
friend will learn a little about other countries in each class. Over time, that little
bit will add up, giving your friend the background to understand business prac-
tices overseas and to fit business transactions into a cultural context.
Suppose your friend is just about to graduate and cannot afford to spend more
time in college? Then she/he should do what all management accountants need
to do—stay up to date by reading books and articles in a variety of international
business areas, including information systems, marketing, management, politics,
and economics.
Note to Instructors: Your students may want to read Daniel M. Hrisak’s “Global
Challenges Call for More CMAs and CFMs,” Strategic Finance (June 2001): pp.
44–49.
18–2
1. e 4. c
2. b 5. a
3. d
18–3
1. e 4. b
2. c 5. a
3. d
603
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be
resold, copied, or distributed without the prior consent of the publisher.
