Ounces of unprocessed gold inventory at cost

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Reference no: EM131879506

On November 1, 2009, Hills Gold Processing Company had 250 ounces of unprocessed gold inventory at a cost of $500 per ounce. The cost of processing the gold is $200 per ounce and the processing takes 5 days. All the volatility in Hills earnings is related to the price fluctuations in processed gold prices. To hedge this position Hills entered into a futures agreement on November 1, 2009 to sell 250 ounces of processed gold on March 15, 2010 for $915 per ounce. The market value of processed gold on November 1, 2009 is $925 per ounce. The hedge qualifies as a fair value hedge of the gold inventory. The price for this futures contract is $975 per ounce on December 31, 2009. Hills Company exits the futures contract on March 15, 2010 when the futures price for this contract is $865. 15. Hills computes the gross profit as Total Revenue (including all gains/losses on the hedging instruments) minus Cost of Unprocessed Gold minus Processing Cost. The gross profit to Hills on March 15, 2010 is : A. $53,750 B. $58,250 C. $68,750 D. $33,500.

Reference no: EM131879506

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