A Company Due to Pay a Certain Amount of a Foreign

question 16

Multiple Choice

A company due to pay a certain amount of a foreign currency in the future decides to hedge with futures contracts.Which of the following best describes the advantage of hedging?

• A) It leads to a better exchange rate being paid
• B) It leads to a more predictable exchange rate being paid
• C) It caps the exchange rate that will be paid
• D) It provides a floor for the exchange rate that will be paid

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Definitions:

Manufacturing Overhead

The indirect factory-related costs that are incurred when a product is manufactured including costs related to depreciation, utilities, and maintenance.

Plantwide Overhead Rate

A single overhead rate calculated by dividing total manufacturing overhead costs by the total measure of activity across the entire plant.

Manufacturing Overhead

All manufacturing costs that are not directly traceable to the product being produced, including costs related to indirect materials, indirect labor, and other indirect expenses.

Activity-Based Costing

An accounting method that assigns costs to products or services based on the activities required to produce them, aiming for more accurate cost allocation.