A U.S.-based company, IBC, has wholly owned subsidiaries across the world. IBC is in the medical products

Question:

A U.S.-based company, IBC, has wholly owned subsidiaries across the world. IBC is in the medical products market and sources most of its sales of medical devices from the United States, but sells most of those devices to the European market.
The president and board members of IBC believe the managers of IBC's wholly owned country level subsidiaries are best motivated and rewarded with both annual salaries and annual bonuses. The bonuses are calculated as a predetermined percentage of pretax annual income. Michael O'Brien, the president of IBC of Ireland, has worked hard to make the Ireland subsidiary profitable, although sales have lagged projections. He is looking forward to receiving his annual bonus, which is calculated as a predetermined percentage of this year's pretax annual income earned by IBC of Ireland. A condensed income statement for IBC of Ireland for the most recent year is as follows (amounts in thousands of euros).
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 euros
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,500
Pretax Income.............................................................................. 500 euros
The U.S. headquarters financial group translates each of its wholly owned subsidiary's results into U.S. dollars for evaluation. After translating the euros income statement into U.S. dollars, the condensed income statement for IBC of Ireland is as follows (amounts in thousands of dollars):
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 51,950
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,300
Pretax Income............................................................................ US$ 1,650
Instructions
a. Calculate the bonus based on the subsidiary's results in euros and U.S. dollars. Translate the euro result to U.S. dollars using a current Compare the results.
b. Calculate the average used to translate the euro statement into the U.S. dollar based statement for: (1) Sales and (2) Expenses.
c. Refer to the answers in parts a. and b. Use those answers to explain why or how IBC of Ireland's euro pretax income differs from the U.S.-dollar pretax income.
d. Explain one reason why the dollar-based pretax income would be appropriate for evaluating Michael O'Brien and one reason why the euros-based pretax income would be appropriate. Which would you choose and why?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...