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

Asch experiments, Asch Experiments In these basics studies by Solomon ...

Asch Experiments In these basics studies by Solomon Asch, groups of seven or 8 people were put in a classroom and shown two cards by the experimenter. The first card had a mai

Adjustment entry, 1) A sales discount correctly taken by the charge custome...

1) A sales discount correctly taken by the charge customer was debited to Sales at the time the entry was recorded. This error will cause. A) the net income for the period to be un

Elements of the tort of negligence, Answer both parts of this task. Part (i...

Answer both parts of this task. Part (i) is worth a maximum of 5 marks and Part (ii) is worth a maximum of 10 marks. (i) List the elements of the tort of negligence. (ii) Enr

Cost recovery deduction, On May 15, 2010, Your Corporation acquired an airp...

On May 15, 2010, Your Corporation acquired an airplane (5 year recovery period, 6 year class life) for $1,450,000. Its qualified business use is 54%. Determine the maximum cost rec

Illustrate the budget constraints generate by programs, Consider a worker w...

Consider a worker who earns $8.00 per hour and has no other source of income.  Compare the following two transfer policies: i.  A negative income tax that sets the tax (per day)

Techniques of inventory control, Inventory control implies a planned approa...

Inventory control implies a planned approach of ascertaining while to buy, how much to buy and how much to stock hence costs including storing and buying are optimally minimum, wit

Various types of accounting changes can affect the financial, Various types...

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

Determine the simple rate of return on the investment, Sheridon Corporation...

Sheridon Corporation is investigating automating a process by purchasing a new machine for $515,000 that would have a 10 year useful life and no salvage value. By automating the pr

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