What is cs optimal decision, Financial Accounting

Copper Suppliers, Inc. (CS), is a distributor of commercial grade copper. CS purchases copper directly from copper mines and then after refining it, sells the refined copper to industrial users-mostly electronics manufacturers. For our purposes, assume the refining process is virtually costless for CS. CS purchases copper quarterly from its suppliers and sells it within a few days of purchase to its customers. In a typical quarter, the purchase price of commercial copper is $1.50 per ounce, and the selling price is $2.00 per ounce. CS prefers to maintain this $0.50 profit per ounce of copper. On July 1, CS is deciding what action to take for the purchase and sale of copper on October 1. The July 1 spot price of unrefined copper is $1.50 per ounce. Because copper prices have been relatively stable in recent years, the futures price of October 1 unrefined copper is also $1.50 per ounce.

Required:

i.) Assume that the selling price for refined copper is has been "sticky" in recent years because of intense competition among copper distributors. Thus, CS knows that it will face a selling price of $2.00 on October 1. However, CS does not know what they will have to pay to buy unrefined copper on that same date.

a) What is CS's optimal decision? Should they use derivatives? Why? If so, how?

b) Assume the October 1 price of unrefined copper rose to $1.75 per ounce because of a production shortage in Brazil. Show any and all relevant journal entries on July 1 and October 1 relating to purchases of unrefined copper, derivatives contracts (if any) and sale of one ounce refined copper. You can assume the refined copper is sold on October 1.

ii) Assume the same facts in (i), part (b) except that:

• the October 1 price of refined copper is determined by the October 1 price of unrefined copper. In particular, assume the refined copper price will reflect a constant markup of $0.50 per ounce;
• CS has a firm commitment of $1.50 per ounce from its supplier for delivery of unrefined copper on October 1.

What should CS do now? Why? Show any and all relevant journal entries on July 1 and October 1 relating to purchases of unrefined copper, derivatives contracts (if any) and sale of one ounce refined copper. You can assume the refined copper is sold on October 1.

Posted Date: 3/26/2013 1:46:26 AM | Location : United States







Related Discussions:- What is cs optimal decision, Assignment Help, Ask Question on What is cs optimal decision, Get Answer, Expert's Help, What is cs optimal decision Discussions

Write discussion on What is cs optimal decision
Your posts are moderated
Related Questions
Order Point Formula The analysis discussed above tends to be somewhat cumbersome when probability distributions are most complex and dependent and multi-period cases are involv

Retained Earnings had a beginning balance of $2,758,000 and an ending balance of $3,885,700. Total revenues for the year were 3,790,800. During the year 130,300 in dividends were d


On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%, resulting in

Uncertainty A gift or disposition not expressive of any definite intention shall be void for uncertainty, i.e A gift under a will fails where there is uncertainty as to:

Good will on consolidation Good will on consolidation arises when the purchase consideration paid by the holding company is different from the value of the net assets acquired i

wrote check to purchase law books for 2500 what 2 accounts

Long-term Debt   10% notes payable $1,000,000 7% convertible bonds payable 5,000,000    Discount

1- Journalize May transactions. Entry: 1. May 1 Owner H.Hadi invested $40,000 in the business. 2. May 4 Equipment was purchased at a cost of $7,000; a three-month, 10% note pa

Q. Retained earnings is increased by each of the following except a. some disposals of treasury stock. b. net income. c. prior period adjustments. d. All of these increase retained