End Users Need to Hedge the Prices at Which They

question 332

Multiple Choice

End users need to hedge the prices at which they can purchase these commodities for instance:

• A) A University might want to lock in the price at which it purchases electricity to supply its air conditioning units for upcoming summer months
• B) An airline wants to lock in the price of the jet fuel it needs to purchase in order to satisfy the peak in seasonal demand for travel
• C) A cotton producer wants to hedge his exposure to changes in the price of fertilizers or his end product (cotton)
• D) Only A and B

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Definitions:

First-In, First-Out Method

An inventory valuation method where goods purchased or manufactured first are sold or used first.

Equivalent Units

A concept in process costing that converts partially completed units into a number of fully completed output units.

Conversion Costs

Costs incurred to convert raw materials into finished goods, including both direct labor and manufacturing overhead.

Materials Costs

The expenses related to the basic materials required for manufacturing products.