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A Farmer Plans to Sell 800 Bales of Greasy Wool

question 36

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A farmer plans to sell 800 bales of greasy wool (21 micron) in four weeks time.The current spot price is 1300 for a contract of 20 bales and the eight week futures price is 1320 (20 bales per contract) .If the farmer hedges how many futures contracts should be purchased?


Definitions:

Job-Order Costing

A costing method used to allocate costs to specific jobs or orders, tracking the expenses associated with each job individually.

Raw Materials Inventory

The stock of unprocessed materials waiting to be used in the manufacturing process.

Operations

A series of actions or activities conducted in a business or system to produce or achieve certain results or goods.

Job-Order Costing

A costing system that tracks costs individually for each job, suitable for manufacturing or service sectors that produce unique products or services.

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