Wallerton, Inc., is a U.S. company that has business operations in Canada. Wallerton€™s Canadian operation exports the majority of its output to customers in the U.S. and sells only a small portion of its output to Canadian customers. The following budgeted income statement for Wallerton separates the revenue and costs that are in Canadian dollars from those in U.S. dollars. Wallerton wants to know the impact of three possible exchange rate scenarios for the Canadian dollar on its budgeted income statement (assume one Canadian dollar is equivalent to either $.72, $.77, or $.82 in U.S. dollars).

Instructions
a. Complete the chart in the working papers related to Wallerton€™s budgeted income statement in U.S. dollars:

b. Explain the impact of a stronger Canadian dollar on budgeted earnings beforetax.

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WALLERTON, INC. BUDGETED INCOME STATEMENT FOR THE PERIOD ENDING DECEMBER 31, 2011 Currency in Millions Canadian U.S Sales Cost of goods sold Gross profit. Operating expenses $304.00 C$ 4 200 $254.00 CS(196) . - ..50.00 x . . . Fixed Variable .- . . .- Total Operating earnings .30.72 $193.28 CS(196) 3.00 10 Earnings before tax $190.28CS(206) Additional Information Possible Exchange Rate $.72 Projected U.S. Sales $300 304 307 82 C$ $.72 CS $.77 CS $.82 Sales 2) Canadian 3) Total Cost of ds sold: 4) U.S 5) Canadian 6) Total Gross profit S103.08 erating expenses: 8) U.S. fixed U.S. variable 10% of sales 10) Total 11) Operating earnings S35.252 Interest expenses 12) U.S 13) Canadian 14) Total Earnings before tax $38.392