The Seller of a Pork Bellies Futures Contract at $0

question 5

Multiple Choice

The seller of a pork bellies futures contract at $0.41 per pound noted that the closing price of pork bellies was $0.44 today.What will happen to this contract,which requires delivery of 40,000 of pork bellies at expiration?

• A) A loss of $400 is posted to the account.
• B) A gain of $400 is posted to the account.
• C) A loss of $1,200 is posted to the account.
• D) A gain of $1,200 is posted to the account.

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Definitions:

Fixed Cost

Fixed costs, including rent, salaries, and insurance, stay the same no matter how much is produced or sold.

Contribution Margin

The amount remaining from sales revenue after variable costs are deducted, contributing towards covering fixed costs and earning profit.

Break Even Point

The point at which total costs and total revenue are equal, meaning the business is neither making a loss nor a profit.

Unit Contribution Margin

The amount each unit sold contributes towards covering fixed costs and generating profit, calculated as the sales price per unit minus variable cost per unit.