Pounds of Trouble Regarding Exchange Rate Variances Essay

Introduction

The case centers on the budgeting dysfunction of the conference held by the European Accounting Professionals Coalition (EAPC), which takes place in various locations in Europe. In the first days of the London conference, it became clear that the event’s organization experienced significant budget changes for unknown reasons and the attendees expressed their negative feedback to the organizers. The president of EAPC plans to identify those responsible for the problems of the event. However, the problem occurred due to improper informing about regional features of currency exchange and the omission of a sudden increase in the pound to euro currency ratio.

Discussion

Considering the static budget variance, the original budget faced two major issues a change in the number of attendees and significant changes in the exchange rate. While the increase in the number of conference attendees from 1220 to 1234 caused an £812 increase in the final actual dinner cost, the difference in the exchange rates primarily contributed to the budgeting problems. In the original exchange rate, the dinner for the conference attendees was calculated as €60 per dinner, which equaled £47,69. In the actual scenario, the unexpected growth of the British economy caused a significant increase in the exchange rate and increased products prices, causing an increase in dinner pound cost by £13379,31.

Furthermore, considering the sales—volume variance, the data can be used to illustrate the effect that the increased number of attendees caused on the budget using the initial exchange rate. The data suggests that 14 additional attendees contributed to the €840 or £667,78 increase, meaning that EAPC membership director Cathy Hansen’s decision to invite more attendees contributed to one percent of the initial budget increase. Hansen’s decision was motivated by the EAPC goal to “increase attendance at its conference events” (Harris et al., 2016). Next, altering the flexible budget data to the exchange rate from December 2014 shows that the effect of the increased rate resulted in a significant increase in budget in pounds. Therefore, the responsibility for the conference’s failure is partially under the responsibility of the head of purchasing for events, Todd Harmon. Harmon failed to identify that an increased exchange rate can negatively influence the prices, while Hansen failed to communicate that she deliberately increased the number of invites. However, both managers cannot be directly responsible as the primary objective of the conference is to increase the number of attendees and it was impossible to predict the sudden exchange rate.

Next, compared to the efficiency variance data, the price variance indicator demonstrates the additional costs the EAPC had to cover to hold the conference. Furthermore, the price variance data illustrates the influence of treasurer Mike Cannon’s mistake in planning the foreign exchange. Lastly, in other cases, managers’ mistakes were caused by external factors or adherence to the organizational goals, while Cannon’s mistake presented a significant part of his functions as a treasurer. The final data of price variance separated into charge and exchange variance illustrates the impact of the exchange rate increase on EAPC’s spending for the conference. The data suggest that the increased exchange rate of pounds contributed to most of the additional expenses. Therefore, there was no opportunity for the director of the London conference to contribute to the event’s failure.

Conclusion

In conclusion, the calculations of each stage of decision-making in the organization of the Annual EAPC Conference provide more insights into the roles of individual managers in the event’s failure. The analysis determined that both Hansen and Harmon’s mistakes did not substantially contribute to the budgeting issue directly, even though they failed to communicate the risks to other organizers and Mike Cannon. Furthermore, as risks management presents a part of the treasurer’s functions, the budgeting issue falls under Cannon’s responsibility; therefore, Cannon appears to be most directly responsible for the dinner failure. Thus, to avoid these problems, it is recommended to pay more attention to risk management, communication, and regional peculiarities of the country in which the conference is held in the future.

Reference

Harris, M. A., Smith, S. D., Swain, M. R., & Tayler, W. B. (2016). Pounds of trouble: Analyzing exchange rate variances. IMA Educational Case Journal, 9(4), 1-5.