A Farmer with Wheat in the Fields and Who Uses

question 45

Multiple Choice

A farmer with wheat in the fields and who uses the futures market to protect a profit is an example of:

• A)a long hedge.
• B)a short hedge.
• C)selling futures to guard against a potential loss.
• D)Both A and C.
• E)Both B and C.

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Definitions:

Accounts Receivable

Signifies the amount customers owe to a business for products or services that have been provided but not yet compensated for.

Budgeted Selling Price

The anticipated price at which a product is expected to be sold, as determined during the budgeting process.

Raw Material Purchases

Costs associated with buying materials that are directly used in the production of goods.

Credit Sales

Sales transactions in which the customer is allowed to pay for goods or services at a later date, creating accounts receivable for the seller.