International Managerial Accounting and Strategic Decisions

Introduction

International managerial accounting supplies the information managers need to allocate resources, coordinate multinational operations, evaluate performance, and make strategic choices under uncertainty. Unlike financial accounting, which primarily serves external users and follows reporting standards, managerial accounting is designed for internal decision-making. Its central question is not merely “What happened?” but “What should management do next, and why?”

The international setting makes this question more difficult. Managers must consider multiple currencies, tax systems, transfer-pricing rules, inflation rates, customs duties, political risks, exchange-rate exposure, cultural differences, geographically dispersed supply chains, and inconsistent data quality. A decision that appears profitable in one subsidiary’s local accounts may reduce consolidated group value. Conversely, a project with modest local accounting profit may create significant strategic benefits through market access, learning, or supply-chain resilience.

This chapter develops an integrated approach to relevant costing, budgeting, variance analysis, activity-based costing, capital budgeting, and risk-adjusted investment appraisal. These tools are applied to global sourcing, market entry, pricing, location, supply-chain, and make-or-buy decisions.

Learning Objectives

By the end of this chapter, students should be able to:

1. Distinguish relevant from irrelevant information in international decisions.
2. Prepare operating budgets and interpret multinational variances.
3. Apply activity-based costing to products, customers, and cross-border processes.
4. Evaluate international investments using net present value, internal rate of return, and risk-adjusted methods.
5. Integrate currency, tax, political, operational, and supply-chain risks into strategic analysis.
6. Identify behavioural, ethical, governance, and data limitations in managerial accounting systems.

1. The Strategic Role of International Managerial Accounting

Managerial accounting supports four connected functions:

• Planning: translating strategic objectives into financial and operational plans.
• Decision-making: comparing alternatives using relevant benefits and costs.
• Control: comparing actual performance with plans and investigating significant deviations.
• Performance evaluation: assessing managers and units in a way that reflects controllability and enterprise value.

A multinational enterprise (MNE) must distinguish three levels of analysis:

A major danger is suboptimization: optimizing one unit while reducing total organizational performance. For example, a subsidiary may buy from a low-cost local supplier to improve its reported margin, even though group-wide procurement could obtain better quality and lower total landed cost from another country.

Managerial accounting therefore needs both financial and non-financial measures. Relevant non-financial indicators include defect rates, lead time, on-time delivery, carbon emissions, employee turnover, customer retention, and resilience of critical suppliers.

2. Relevant Costing for International Decisions

2.1 Meaning of relevance

A cost or benefit is relevant to a decision when it is:

1. Future-oriented; and
2. Different between alternatives.

The relevant amount is often expressed as an incremental or avoidable cost:

A cost already incurred is a sunk cost and is irrelevant to a current decision. A cost that will be incurred regardless of the alternative is also irrelevant, unless the decision changes it. Opportunity costs are relevant because using a resource for one purpose sacrifices its best alternative use.

2.2 International adjustments

International relevant-cost analysis may include:

• purchase price and supplier discounts;
• freight, insurance, port handling, and customs duties;
• inspection, rework, and expected defect costs;
• inventory financing and safety-stock costs;
• local taxes that are not recoverable;
• expected exchange-rate effects;
• political-risk premiums or disruption costs;
• incremental compliance and certification costs;
• lost contribution from using scarce internal capacity;
• working-capital changes; and
• environmental remediation or carbon costs where decision-relevant.

The analysis should avoid double counting. For example, if a supplier’s price already includes insurance and freight, those items should not be added again.

2.3 Make-or-buy decisions

Suppose an MNE requires 20,000 components. A foreign supplier offers a price of $46 per unit. Import duty is 5% of invoice value, freight is $3 per unit, and quality-related expected cost is $2 per unit. Internal production requires variable cost of $31 per unit and avoidable fixed cost of $120,000. Allocated corporate fixed cost of $180,000 will continue regardless of the decision.

The relevant cost of buying is:

The relevant cost of making is:

Therefore, making saves $331,000 before considering opportunity costs. If internal capacity could instead produce a product generating $400,000 contribution, the opportunity cost of making is $400,000. The adjusted cost of making becomes $1,140,000, so buying is preferable by $69,000.

This example demonstrates why unit-price comparisons are unreliable. The decision depends on total relevant cost, capacity, quality, risk, and alternative uses of resources.

2.4 Global sourcing and landed cost

A useful sourcing measure is total landed cost:

The formula is applicable when the listed components are incremental and measured on a comparable basis. Currency conversion must use a clearly stated exchange-rate convention. If a price is quoted in euros and the analysis is in dollars, all euro-denominated items should be translated consistently, while the exposure to future exchange-rate changes should be assessed separately.

Managers should also consider total cost of ownership, which extends landed cost to include supplier qualification, system integration, maintenance, warranty, disposal, and switching costs. A low purchase price may be economically inferior if it creates frequent disruptions or high life-cycle costs.

2.5 Special-order and export-pricing decisions

For a short-term order with spare capacity, the minimum acceptable price is generally the incremental cost per unit plus any opportunity cost per unit:

This is a short-run decision rule, not a general pricing strategy. It may be inappropriate when the order affects normal market prices, creates future service obligations, violates transfer-pricing requirements, or consumes scarce capacity.

3. Budgeting in a Multinational Enterprise

A budget is a quantified plan for a defined period. In an MNE, budgeting is both a financial process and a coordination mechanism. The master budget commonly includes sales, production, procurement, labour, operating expenses, capital expenditure, cash flows, and projected financial statements.

3.1 Flexible budgets

A static budget is prepared for one activity level. A flexible budget adjusts variable costs to the actual activity level and is therefore more useful for control.

If variable cost per unit is v, fixed cost is F, and actual output is Q, the flexible-budget cost is:

This relationship assumes that variable cost per unit is constant within the relevant range and that fixed cost does not change within that range. In practice, step costs, inflation, overtime, and capacity constraints may invalidate a simple linear model.

3.2 Rolling forecasts and scenario planning

Annual budgets can become obsolete when exchange rates, commodity prices, demand, or regulations change rapidly. A rolling forecast continually extends the planning horizon, while scenario planning examines coherent combinations of assumptions:

• base case;
• high-demand or favourable-market case;
• recession or low-demand case;
• disruption, sanctions, or supply-shortage case.

A robust international budget includes assumptions for volume, price, inflation, exchange rates, tax, working capital, lead times, and capacity. Assumptions should be documented, owned by responsible managers, and periodically stress-tested.

3.3 Currency translation and transaction exposure

A budget may be prepared in local currency but evaluated in the group’s reporting currency. Translation can obscure operating performance. Managers should distinguish:

• transaction exposure: risk that a committed foreign-currency cash flow changes in home-currency value;
• translation exposure: accounting change arising from converting subsidiary statements;
• economic exposure: longer-term effect of exchange rates on competitiveness and cash flows.

Operational variances should not be confused with exchange-rate variances. A subsidiary may have controlled its local costs successfully while reporting a negative home-currency variance solely because of currency movements.

4. Variance Analysis and Performance Interpretation

Variance analysis compares actual results with a budget or standard. It is useful only when managers investigate causes rather than mechanically blame unfavourable numbers.

For revenue, a simple price variance is:

For material cost, the price and usage variances are commonly expressed as:

A favourable variance is not automatically good. Purchasing cheaper materials may increase defects, warranty claims, or production downtime. Similarly, an unfavourable labour-rate variance may reflect the use of highly skilled workers who improve quality and throughput.

Worked example: material variances

A plant should use 2 kilograms of material per finished unit at a standard price of $5 per kilogram. It produces 1,000 units. Actual material usage is 2,150 kilograms at $5.40 per kilogram.

Standard quantity allowed is:

Material price variance:

Material usage variance:

Total material cost variance is $1,610 unfavourable, equal to actual cost $11,610 less standard cost allowed $10,000.

International interpretation requires additional questions: Did the exchange rate raise the local price? Was a substitute material used because of sanctions? Did supplier quality cause excess usage? Were standards based on obsolete logistics or production conditions?

Transfer pricing and controllability

Transfer prices affect subsidiary profits, taxes, incentives, and reported performance. A transfer price may be based on market price, negotiated price, variable cost, full cost, or an arm’s-length method required by tax authorities. Internal performance evaluation should separate controllable operating performance from centrally determined transfer prices, currency movements, and group-wide financing decisions.

5. Activity-Based Costing and Strategic Profitability

Traditional costing often allocates overhead using one volume measure, such as direct labour hours. This can distort costs when products or customers consume support activities differently. Activity-based costing (ABC) assigns resource costs to activities and then assigns activity costs to cost objects using cost drivers.

The basic cost-driver rate is:

The cost assigned to a product or customer is:

Assumptions include a meaningful causal relationship between driver usage and activity cost, reasonably stable cost behaviour, and reliable activity data.

ABC example

An international distribution centre has three activity pools:

Customer A uses 100 orders, 80 inspections, and 150 shipments. Its assigned overhead is:

If Customer A purchases 10,000 units, ABC overhead is $6.60 per unit. A high-volume customer may nevertheless be unprofitable if it places many small orders, requires special inspections, and demands frequent shipments.

ABC supports customer profitability, product-line rationalization, location analysis, and process improvement. It can reveal cost-to-serve differences that are invisible in product gross margins.

However, ABC is not automatically superior. It can be expensive to maintain, may create false precision, and may become unreliable when activities change. Time-driven ABC can simplify implementation by estimating the cost per unit of capacity and the time required for transactions. Managers should compare the decision value of more detailed information with its collection cost.

6. Capital Budgeting for International Investments

Capital budgeting evaluates long-term investments such as overseas plants, distribution centres, information systems, acquisitions, and market-entry platforms. The preferred financial criterion is generally net present value (NPV), because it measures the increase in value created by a project.

Here, I₀ is the initial investment, CFₜ is the incremental after-tax cash flow in period t, r is the discount rate consistent with the currency and risk of the cash flows, and n is the project life. Accept a conventional independent project when NPV > 0, subject to strategic, legal, and resource constraints.

Cash flows—not accounting profits—should be used. Relevant cash-flow components may include:

• initial capital expenditure;
• incremental revenues and operating costs;
• taxes and tax shields;
• working-capital investment and recovery;
• terminal or salvage value;
• environmental closure costs;
• remittable cash flows and withholding taxes; and
• effects on existing operations.

Currency consistency

Two consistent approaches are possible:

1. Forecast cash flows in local currency and discount them at a local-currency discount rate, then convert value using an appropriate exchange-rate relationship; or
2. Convert expected cash flows into the parent currency and discount them at a parent-currency rate.

Mixing local-currency cash flows with a parent-currency discount rate produces an invalid NPV. Inflation assumptions must also be consistent: nominal cash flows use nominal discount rates, while real cash flows use real discount rates.

The relationship between nominal and real rates is:

where rₙ is the nominal rate, rᵣ is the real rate, and π is the inflation rate. This relationship assumes consistent compounding periods and is exact under the stated definitions.

Worked NPV example

An overseas project requires an initial investment of $1,000,000 and generates after-tax cash flows of $380,000 annually for three years. Its discount rate is 10%, and there is no terminal value.

The present values are approximately $345,455, $314,050, and $285,500. Therefore:

On purely financial grounds, the project should not be accepted. Management may still consider it if it creates valuable strategic options, protects a critical market, or generates benefits not included in the cash flows. Those benefits should be identified and, where possible, valued rather than used as an unsupported justification.

The internal rate of return (IRR) is the discount rate that makes NPV equal to zero:

IRR can be misleading for mutually exclusive projects, non-conventional cash flows, or projects with different scales. NPV is generally the stronger decision criterion when the objective is value maximization.

7. Risk-Adjusted Investment Appraisal

International projects face market, currency, political, regulatory, technological, and supply-chain risks. Risk should be incorporated transparently rather than hidden in arbitrary estimates.

7.1 Sensitivity and scenario analysis

Sensitivity analysis changes one assumption at a time, such as volume, price, exchange rate, or operating cost. Scenario analysis changes several related assumptions simultaneously. These methods show which assumptions drive value but do not by themselves assign probabilities.

7.2 Expected NPV

If scenario j has probability pⱼ and NPVⱼ, expected NPV is:

with:

This method is useful when scenarios and probabilities are credible. It can conceal extreme downside risk if managers focus only on the mean.

7.3 Risk-adjusted discount rates and certainty equivalents

A higher discount rate may be used for riskier cash flows, but this approach can be crude because it applies a single adjustment to all periods. A certainty-equivalent approach adjusts each expected cash flow by a certainty factor αₜ between zero and one, then discounts at a relatively risk-free rate:

The method is appropriate only when certainty factors reflect decision-makers’ risk assessment and the risk-free rate is consistent with the currency and maturity of the cash flows.

7.4 Real options

An investment may create the option to expand, delay, abandon, switch suppliers, or stage commitment. Traditional NPV can undervalue flexibility because it assumes a fixed plan. Real-options reasoning is especially relevant where uncertainty is high and management can respond to new information. Nevertheless, option values should not be asserted qualitatively without identifying the underlying uncertainty, decision rights, timing, and likely cash-flow consequences.

8. Strategic Applications

Market entry

Managers should combine market-size forecasts with entry costs, local adaptation, distribution investment, tax, repatriation restrictions, and competitive response. A country with low labour cost may be unattractive if infrastructure is weak or regulatory uncertainty is high. Entry modes—exporting, licensing, joint venture, acquisition, and greenfield investment—have different control, risk, capital, and learning profiles.

Location decisions

Location analysis should compare total economic contribution, not simply wages or tax rates. Relevant factors include labour productivity, logistics, energy reliability, supplier ecosystem, skills, tariffs, political stability, intellectual-property protection, environmental obligations, and exit costs.

Pricing across borders

International pricing must distinguish customer willingness to pay from accounting cost. Managers should assess local competitive prices, tariffs, VAT or sales taxes, distribution margins, exchange rates, transfer prices, and demand elasticity. A contribution margin is:

For a scarce resource, the useful comparison is contribution per unit of the constrained resource:

This rule applies in the short run when fixed costs are unchanged and products compete for the same binding constraint.

Supply-chain resilience

A low-cost single-supplier strategy may expose the group to disruption. Relevant analysis can compare expected operating costs with expected disruption losses:

This is a simplifying expected-value model. It should be supplemented with stress testing because disruption consequences may be nonlinear, correlated, and difficult to estimate.

9. Illustrative Case: Meridian Devices’ Southeast Asian Expansion

Background

Meridian Devices, a fictional multinational producer of medical monitoring equipment, is considering a manufacturing and distribution operation in Country X. The project would serve local demand and export to neighbouring markets. Management estimates an initial investment of $12 million, annual after-tax operating cash flow of $4.2 million for four years, and terminal recovery of working capital and equipment of $2.5 million in year four. The parent company’s required return for comparable projects is 11%.

Problem

The country offers lower labour costs, but the project faces currency volatility, possible import restrictions on electronic components, uncertain demand, and a 20% probability of a two-month regulatory shutdown in year two. A local joint-venture partner proposes a 30% equity interest and local distribution support.

Analysis

The base-case NPV is:

where amounts are in millions of dollars and year-four cash flow includes $4.2 million operating cash flow plus $2.5 million terminal recovery. The present values are approximately 3.784, 3.409, 3.071, and 4.375 million. Base-case NPV is therefore approximately $2.64 million.

Management then models a downside case in which year-two cash flow falls by $1.5 million because of the shutdown, annual demand is 15% lower in years three and four, and the currency depreciates 12% against the dollar. Rather than simply increasing the discount rate, the team models the operating and currency effects explicitly. It also estimates the value of a staged expansion: Meridian would build only 60% of planned capacity initially and exercise the expansion option if demand reaches a specified threshold.

ABC analysis identifies that export customers require more inspections and smaller shipments than domestic customers. The apparent export margin is overstated under traditional volume-based overhead allocation. A supplier comparison also shows that the cheapest component supplier has a higher defect rate and longer lead time; total landed cost is lower for a slightly more expensive regional supplier.

Approach and solution

The recommended decision process is to:

1. Prepare local-currency operating forecasts and convert them consistently into parent-currency cash flows.
2. Separate operating performance from translation effects.
3. Include tax, withholding, working capital, duties, compliance, and shutdown costs.
4. Evaluate base, downside, and upside scenarios.
5. Compare wholly owned, joint-venture, and staged-entry alternatives.
6. Use ABC cost-to-serve information in export pricing.
7. Establish non-financial controls for quality, regulatory compliance, safety, and delivery reliability.

The project should proceed only if the downside case remains tolerable, governance rights are adequate, and the joint-venture agreement clearly allocates control, funding, intellectual property, audit access, and exit rights. The positive base-case NPV alone is insufficient.

Outcome and learning points

The case illustrates that international managerial accounting is an integrated discipline. Relevant costing identifies the true sourcing economics; budgeting establishes assumptions; variance analysis monitors execution; ABC reveals customer profitability; and capital budgeting evaluates value creation. Risk analysis and governance determine whether the financial result is sufficiently reliable for a strategic commitment.

10. Governance, Ethics, Technology, and Limitations

Managerial accounting information can influence employment, supplier selection, tax payments, executive rewards, and investment in developing economies. Ethical practice requires transparent assumptions, avoidance of manipulated forecasts, respect for labour and environmental standards, and clear distinction between legitimate tax planning and abusive profit shifting.

Transfer-pricing decisions must comply with applicable tax law and the arm’s-length principle. Internal management prices may differ from tax prices, but reconciliations and documentation are essential. Managers should not use internal accounting systems to conceal bribery, sanctions violations, forced labour, unsafe conditions, or environmental damage.

Enterprise-resource-planning systems, robotic process automation, predictive analytics, and AI can improve forecasting and anomaly detection. However, automated models may reproduce biased historical decisions, use unreliable subsidiary data, or generate false precision. Effective governance requires data lineage, access controls, human review, model validation, cybersecurity, and documented override procedures.

Important limitations include uncertain forecasts, interdependent risks, unstable cost behaviour, allocation subjectivity, political discontinuities, and behavioural responses. A sophisticated model does not eliminate uncertainty. It makes assumptions more visible and enables disciplined challenge.

Best-Practice Framework

A defensible international decision model should:

1. Define the decision, alternatives, time horizon, and decision-maker.
2. Identify incremental cash flows and exclude sunk or unavoidable costs.
3. Include opportunity costs, taxes, working capital, and strategic side effects.
4. Use consistent currency, inflation, and discount-rate assumptions.
5. Reconcile operational, accounting, and group-level perspectives.
6. Test sensitivity, scenarios, and extreme downside conditions.
7. Assess non-financial measures and stakeholder effects.
8. Assign accountability for assumptions and post-investment review.
9. Document governance, compliance, and ethical safeguards.
10. Compare forecast outcomes with actual results and learn systematically.

Chapter Summary

International managerial accounting supports strategic decisions by connecting operational data with enterprise value. Relevant costs are future costs that differ between alternatives; opportunity costs must be included, while sunk and unavoidable costs should be excluded. Global sourcing requires total landed cost and, often, total cost of ownership rather than simple supplier-price comparisons.

Flexible budgets and variance analysis help managers distinguish volume, price, efficiency, currency, and operational effects. Variances must be interpreted in context because a favourable cost variance may damage quality or resilience. Activity-based costing improves visibility of overhead and cost-to-serve when products or customers consume activities differently.

Capital budgeting should use incremental after-tax cash flows and consistent currency, inflation, and discount-rate assumptions. NPV is generally the strongest value criterion, while IRR, sensitivity analysis, scenario analysis, expected NPV, certainty equivalents, and real-options reasoning provide complementary insight. International investment decisions must incorporate political, currency, regulatory, supply-chain, ethical, and governance risks.

The most effective managerial accounting systems combine financial measures with operational and strategic indicators. They support disciplined decisions without creating false certainty, encourage responsible behaviour, and align local actions with multinational enterprise value.

Key Terms

Activity-based costing: A costing system that assigns resource costs to activities and then to products, services, or customers using cost drivers.

Allocated fixed cost: A fixed cost assigned to a cost object for reporting purposes, which may not be avoidable by a decision.

Capital budgeting: Evaluation of long-term investments using expected cash flows, risk, and strategic consequences.

Certainty equivalent: A risk-adjusted cash-flow amount regarded as equivalent to an uncertain expected cash flow.

Contribution margin: Sales revenue minus variable costs.

Controllability: The extent to which a manager can influence a measured cost, revenue, or outcome.

Economic exposure: The long-term effect of exchange-rate changes on an enterprise’s competitive cash flows.

Expected NPV: Probability-weighted average of NPVs across defined scenarios.

Flexible budget: A budget adjusted for the actual level of activity.

Incremental cost: Additional cost caused by selecting one alternative rather than another.

Landed cost: Purchase and logistics-related cost of obtaining goods at the destination.

Material usage variance: Difference caused by using a quantity of material different from the standard quantity allowed.

Net present value: Present value of incremental future cash flows minus the initial investment.

Opportunity cost: Benefit sacrificed by using a resource for one alternative rather than its best available alternative.

Relevant cost: A future cost that differs between decision alternatives.

Real option: The value of managerial flexibility to expand, delay, abandon, or alter an investment.

Sunk cost: A past cost that cannot be changed by a current decision.

Total cost of ownership: Acquisition, operating, support, risk, and disposal costs over an asset or supplier relationship’s life.

Translation exposure: Accounting exposure arising when foreign subsidiary accounts are converted into the group reporting currency.

Variance analysis: Comparison of actual performance with budgeted or standard performance and investigation of causes.

Review Questions

Short Answer Questions

1. What two conditions make a cost relevant to a decision?
2. Why can a subsidiary’s favourable local variance be misleading at group level?
3. What is the purpose of an activity cost driver?
4. Why must currency and discount-rate assumptions be consistent in capital budgeting?
5. Distinguish transaction exposure from translation exposure.

Long Answer Questions

1. Explain how an MNE should evaluate a global make-or-buy decision, including opportunity costs, quality, logistics, currency, and strategic risk.
2. Discuss the strengths and limitations of flexible budgets and variance analysis in a multinational enterprise.
3. Explain how ABC can improve customer and product profitability analysis, and identify circumstances in which it may fail.
4. Compare NPV, IRR, scenario analysis, and real-options reasoning as tools for international investment appraisal.
5. Evaluate the ethical and governance responsibilities associated with transfer pricing and AI-supported managerial accounting.

Analytical / Application Questions

1. A foreign supplier quotes €42 per unit. Freight is €2, duty is 6% of invoice value, and expected quality cost is €1.50. The exchange rate is $1.10 per euro. Calculate the dollar landed cost per unit, stating your assumptions.
2. A project costs $5 million and produces $2 million annually for three years, with a $1 million terminal cash flow in year three. Using a 12% discount rate, calculate its NPV and recommend acceptance or rejection.
3. A company is choosing between a low-cost single supplier and two higher-cost suppliers. Design a decision model that incorporates expected disruption cost, quality, inventory, currency exposure, and resilience rather than relying only on quoted price.

Multiple Choice Questions with Answers

Question 1

Which cost is normally relevant to a current make-or-buy decision?

A. A fixed corporate allocation that will continue under either alternative

B. The historical cost of equipment already purchased

C. The contribution sacrificed by using capacity for internal production

D. A past feasibility-study cost

Correct Answer: C. The contribution sacrificed by using capacity for internal production

Question 2

A product requires 2 kilograms of material per unit. For 1,000 units, actual usage is 2,150 kilograms and the standard price is $5 per kilogram. What is the material usage variance?

A. $750 favourable

B. $750 unfavourable

C. $860 unfavourable

D. $1,610 unfavourable

Correct Answer: B. $750 unfavourable

Question 3

Which formula correctly calculates an activity-based costing rate?

A. Total sales ÷ Number of products

B. Activity cost pool ÷ Expected quantity of cost driver

C. Fixed cost ÷ Variable cost

D. Actual cost ÷ Selling price

Correct Answer: B. Activity cost pool ÷ Expected quantity of cost driver

Question 4

Which statement about NPV is correct?

A. It uses accounting profit rather than cash flow

B. It is independent of the discount rate

C. It measures the present value of incremental cash flows less initial investment

D. It always gives the same ranking as IRR

Correct Answer: C. It measures the present value of incremental cash flows less initial investment

Question 5

A project has an initial investment of $1,000,000 and three annual cash flows of $380,000 discounted at 10%. Its approximate NPV is:

A. $54,995 positive

B. $380,000 positive

C. $54,995 negative

D. $1,140,000 negative

Correct Answer: C. $54,995 negative

Question 6

What is the principal danger of mixing local-currency cash flows with a parent-currency discount rate?

A. It understates all taxes

B. It creates currency inconsistency in the valuation

C. It eliminates translation exposure

D. It converts fixed costs into variable costs

Correct Answer: B. It creates currency inconsistency in the valuation

Question 7

Which measure is most useful when products compete for a binding production constraint?

A. Revenue per product unit

B. Full cost per product unit

C. Contribution per unit of constrained resource

D. Allocated corporate cost per unit

Correct Answer: C. Contribution per unit of constrained resource

Question 8

Expected NPV is calculated by:

A. Adding all scenario NPVs without probabilities

B. Multiplying each scenario NPV by its probability and summing the results

C. Discounting only the worst-case NPV

D. Using the highest scenario NPV as the forecast

Correct Answer: B. Multiplying each scenario NPV by its probability and summing the results

Question 9

Which item is an example of translation exposure?

A. A foreign-currency payable whose settlement value changes

B. Conversion of a subsidiary’s financial statements into the group reporting currency

C. A change in local customer demand caused by exchange rates

D. A supplier’s change in product quality

Correct Answer: B. Conversion of a subsidiary’s financial statements into the group reporting currency

Question 10

Why can a low supplier purchase price be strategically misleading?

A. Purchase price is never a cost

B. It may exclude logistics, quality, inventory, disruption, and ownership costs

C. It always includes all taxes twice

D. It automatically increases opportunity cost

Correct Answer: B. It may exclude logistics, quality, inventory, disruption, and ownership costs