What is cs optimal decision, Financial Accounting

Assignment Help:

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.


Related Discussions:- What is cs optimal decision

Ideal minority interest, IDEAL MINORITY INTEREST The minority interest id...

IDEAL MINORITY INTEREST The minority interest ideally is entitled to the profit after tax in minority interest. However due to consolidation, the profits of the subsidiary compan

Foreign currency translation, Foreign Currency Translation - Restating fore...

Foreign Currency Translation - Restating foreign currency in equivalent dollars; unrealized losses or gains are postponed and carried in Stockholder's Equity until foreign operatio

Calculate the standard cost and profit, Question: A company produces an...

Question: A company produces and sells a single product, the standard unit cost details of which are as follows: Direct material 2 kilos x Rs4.5 per kilo Direct labour 3 ho

Money, if you inherited 45,000 today and invested all of it in a security t...

if you inherited 45,000 today and invested all of it in a security that paid a 7 percent rate of return how much would you have in 25 years

The balance sheet-financial statement, THE BALANCE SHEET It shows the f...

THE BALANCE SHEET It shows the financial position of the company as at the end of a given financial period. The standard requires that assets and liabilities should be classifi

How do you react to the investment banker?, You are the CFO of Diversi?ed I...

You are the CFO of Diversi?ed Industries. Diversi?ed has suffered through 4 or 5 tough years. This has deteriorated its ? financial condition to the point that Diversi?ed is in dan

Financial transaction reports , Answer both parts in this task. Part (i) is...

Answer both parts in this task. Part (i) is worth a maximum of 10 Marks, while part (ii) is worth a maximum of 5 Marks. (i) Minnie owes Micky Mouse $500 and hands him a cheque p

IFRS vs Gaap, #questBackground: The SEC set up the Work Plan which sets for...

#questBackground: The SEC set up the Work Plan which sets forth specific areas and factors to consider before potentially transitioning our current financial reporting system for U

Calculate the depreciation of project, A small airline company called Mancu...

A small airline company called Mancunian Airways (MA) is considering purchasing a new jet, which will be used solely on the new route: Manchester, Paris, Madrid and back to Manch

Reduces retained earnings by the fair market value, Q. If a stockholder rec...

Q. If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock, the stockholder has received a a. large stock dividend. b. cash divide

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd