Suppose You Agree to Purchase One Ounce of Gold for $382

question 55

Multiple Choice

Suppose you agree to purchase one ounce of gold for $382 any time over the next month. The current price of gold is $380. The spot price of gold then falls to $377 the next day. If the agreement is represented by a futures contract marking to market on a daily basis as the price changes,what is your cash flow at the end of the next business day?

• A) $0
• B) $3
• C) $5
• D) -$3
• E) -$5

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Definitions:

Raw Material

The basic substances or components that are processed and transformed into finished goods in manufacturing.

Fixed Overhead Volume Variance

The difference between the budgeted and actual volume of production, multiplied by the fixed overhead rate, indicating how fixed costs are allocated over different levels of output.

Fixed Overhead Budget Variance

This term refers to the difference between the budgeted fixed overhead costs and the actual fixed overhead costs incurred.

Standard Fixed Manufacturing Overhead Rate

The predetermined rate used to apply fixed manufacturing overhead to products, based on an estimate of total fixed manufacturing costs and an allocation basis.