Heinz Uses 2000 Tons of Corn Syrup Each Year as an Ingredient

question 23

Multiple Choice

Heinz uses 2000 tons of corn syrup each year as an ingredient in its tomato ketchup products.Heinz is concerned about the increase in prices of corn-based products and purchases a fixed-price contract to buy corn syrup at $20,000 per ton.What is the impact on earnings before taxes as opposed to no hedging if the price of corn is $15,000 per ton over the next year?

• A)+$5 million
• B)-$10 million
• C)$0
• D)+$10 million
• E)-$5 million

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Definitions:

Factory Labor Expense

Costs associated with the wages and benefits of factory workers directly involved in producing goods.

Process Costing System

A costing method used in industries where production is continuous, assigning costs to units of product based on the process they go through.

Direct Materials

The raw materials that are used directly in the manufacturing of a product and can be easily traced to it.

Journal Entry

A record in the accounting journal that represents a business transaction, including information such as the date, accounts affected, and amounts debited and credited.