Hann Company is a U.S. mulitnational firm with operations in several foreign countries. Hann has 100% stake in a French subisdiary. The foregin subisdisary local currency has appreciated against the U.S. dollar over the last financial statement reporting period. In addition, the French firm accounts for invetories using FIFO. The gross profit margin as computed und er the current rate method would most likely be A) lower than the gross profit margin as computed under the temporal method. The average rate is used to convert sales under both temporal and current rate method. hence the only difference is COGS. sine the firm uses FIFO, older materials are flowing into COGS and an older exchange rate applies. since in the past foreign currency bought fewer US dollars, the gross porfit under the temporal method will be higher. ok i dont get this!! im freaking out! so lets say the currency exchange rates were 0.60 USD/EUR(historical) average 0.70 USD/EUR current 0.80 this means EUR is appreciating, because it buys more USD so if i translate my cogs with old exchange rate , which is lower like say 0.60, than my cogs will be lower and my gross profit margin would be higher under temporal!! what am i getting wrong???’
No to convert from Euro COGS to $ you divide by 0.6 so COGS will be higher
Sorry, I was wrong, let me think first
easy there babe. so say your sales is 5 euros, you translate at average, 5 x .7. now say your COGS is 3 euros. under temporal, you use historical, so 3 x .6. under AC you use average, so 3 x .7. your COGS here is higher translated under AC. gross profit margin is sales - cogs as the numerator. so which gets you a bigger numerator? temporal, b/c you subtract less. so temporal here gives you a bigger ratio. you can do this. don’t panic- you have your stuff fine, breath, walk through examples like you did. you are correct in everything- the q said that the current rate gross profit is lower than temporal, you say temporal higher than AC. tomato, tomato, you’re golden.
For current method, you have to use recent rate so COGS higher, gross margin lowe
I meant average rate which is higher than historic
Bannisja, you still studying? I’m about to breeze through Secret Sauce and call it a day…if I don’t know it by now, I never will.
i just did another pass through ethics and walked through my corp fi notecards. i have to drive my roommie to an appt at 3:30pm somewhere, was thinking get back, go to gym, then maybe over dinner just do a quick whirl through my FI and derivs notecards and then call it. i will do nada after 8pm or so except f around on this forum and hop into bed by 9ish or so.
Yeah, I’m going out for drinks after work, then dinner, review cards/Quicksheet for a half hour, then watch a movie. I see some valium in my future to aid in sleeping tonight.
just remember to wake up and i think you’re going to be just fine.
Thanks, I’ll try Wouldn’t that be a kick in the fugging balls.
thank you! yeah im really nervous soon time to go to bed its, 9 pm here. one last question, if that stuff with FIFO - i does make a difference that it is stated there, right? because i take average rate anyway?
it matters because if you were under LIFO there- you’d be using the last inventory so “historical” actually would’ve been closer to an ending rate and this answer would’ve been exactly the opposite. you’d take the average rate if you were using “historical” (temporal) and inventory was sold off evenly during the year. try to not stress too hard. you know plenty- don’t let nerves get in the way. sleep well, relax, and it’ll show tomorrow how hard you’ve studied. you’ve got this.
Agreed - at this point we can all think of things that we don’t know and that we’re nervous about showing up on the test tomorrow, but instead of that, focus on ALL the stuff that you know down cold and are going to ace tomorrow. We can all think of the 5% that we don’t know; relax, and focus on the 95% that you’re copmfortable with.
Should read “comfortable” (Microsoft Word makes my typing sloppy because it fixes all that kind of stuff for me). My apologies for the typo.
thank you!! I WANT TO PASS!!! SO GOOD LUCK TO YOU ALL!!! THANKS FOR ALL YOUR HELP AND SUPPORT!