Acer Tool & Die Company Income Statement For year ending December 31, 2005 (Amounts in millions of Chad) Revenues 1,000 Cost of sales 700 Depreciation expense 50 Selling expense 30 Translation gain (or loss) Net income 220 Acer has determined that the exchange rate exposure at the beginning of 2005 is −260 Chad. The exchange rate at the beginning of 2005 was 0.3333 Chad/US$. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90 Chad. Acer Tool & Die uses FIFO inventory valuation and depreciates fixed assets using the straight-line method. Assume that retained earnings at year end 2004 were zero, the historical exchange rate for depreciation is 0.333, and no dividends were paid during 2005. What is Acer Tool & Die’s cost of sales in U.S. dollars using the temporal method? A) $2,222. B) $2,242. C) 2,240. Your answer: A was correct! How do they get A? I would have thought you would use historical rate (0.3333 Chad/) which would amount to 700*(1/0.3333)=$2,100
FIFO --> uses beginning inventory cost as cost of sales number. We are using temporal method so we use actual (historical) exchange rate for cost of sales. So basically what I am saying is that I am just as stumped as you 
it must a Qbank stuff-up - the exchange rate would have to be 0.315 Chad/$ for 700 Chad to equal $2,222 and I don’t see that rate anywhere
I just did a question in CFAI that confirms we are correct. Let’s forget about it. On another note, I find CFAI questions much better than Qbank
Looks like they took the beg inventory of 90 and used the beg exchange rate of .3333 and the average exchange rate of 0.3125 for the remaining 610. (90 / 0.3333) + (610/.3125) = 270 + 1952 = 2222
vsurya Wrote: ------------------------------------------------------- > Looks like they took the beg inventory of 90 and > used the beg exchange rate of .3333 and the > average exchange rate of 0.3125 for the remaining > 610. > > (90 / 0.3333) + (610/.3125) = 270 + 1952 = 2222 I’d seen something similar done in one of the Stalla sample problems. I don’t recall seeing that in the reading, but I suppose it makes sense… Now if only I can remember to do it on exam day…
vsurya Wrote: ------------------------------------------------------- > Looks like they took the beg inventory of 90 and > used the beg exchange rate of .3333 and the > average exchange rate of 0.3125 for the remaining > 610. > > (90 / 0.3333) + (610/.3125) = 270 + 1952 = 2222 Well spotted, but I also haven’t seen it done that way in the readings.
Unless there’s something omitted from the problem, I see no statement that would indicate to us that part of the inventory was bought/sold evenly throughout the year. Without that statement, and being told to use Temporal, I agree that the only rate to use would be Historic. Also agree with not seeing it done like that in the readings either.