You have been hired as a consultant for Thomas Foods.


You have been hired as a consultant for Thomas Foods. Thomas Foods was incorporated in 1969. Thomas Foods sells produce purchased from farmers to neighborhood grocery stores throughout the country. Thomas Foods has asked you to implement a hedging strategy to mitigate the risks associated with any unexpected increase in price they would have to pay farmers for their harvested crops. Thomas Foods asks that you provide examples of how various hedging strategies could be implemented. The Controller of the company has no experience in this area and would need to understand the accounting treatment for whichever hedging strategy you select. Of significant importance to management is how any hedging strategy would impact operating income.

You have been hired as a consultant for Thomas Foods.
You have been hired as a consultant for Thomas Foods.

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…name xxxxxxxxxx Option xxxxxxxxx are the xxxx which are xxxxxx peculiar xx xxxxxx and xxxx are little xxxxxxxxx to understand xx options xxxxxxxx xx one xxxxxxxx where in xxx buyer of xxx option xxx xxx right xxx the obligation xx buying or xxxxxxx the xxxxxxxxxx xxxxx in xxx future date xx the pre-agreed xxxx price xx xxx estimated xxxxx under the xxxxxx contract is xxxxxxxxxxx then xx xxxxxx go xxxxxxxxxx the contract xxxxxxxxx we should xxx be xxxxxxxxxx xxx contract xxxxx are various xxxxx of option xxxxxxxx and xxx xx discuss xxxxx the option xxxxxxxx pertained to xxx commodity xx xxxx of xxxxxxxx the writer xx the option xxxx certain xxxxxxx xxx avail xxx contract So xx the delivery xxxx of xxx xxxxxxx if xxx price of xxxxxxxxxx commodity is xxxxxxxxxx for xxx xxxxxx writer, xxxx leaves the xxxxxxxx without writing xxx the xxxxxx xxxxxxx lapsed xxxxxxxxx the options xxx six months xx nature xxxx xxx option xxxxxxxx then the xxxxxxxx gets vanished xxx subsequently x xxx contract xx enter into xx case of xxxxxxxx suppose xxxx xxxxxx Foods xxx entered into xx agreement of xxxxxx a xxx xx Wheat xxx $100 on xxxxxxxxx 25 , xxxx and xxx xxxx the xxxxxxx has given xxxxxxx of $5 xx November xxx xxxx the xxxxx of a xxx of Wheat xx $140 xx xxx market xx the company xxxxxx go exercise xxx contract xx xxx…

2330011.docx (14.86 KB)Preview: that, xx due xx certain bad xxxxxxx conditions, the xxxxx of xxx xxxxx increases, xx will be xxxxxxxxx difficult for xxxxxx Foods xx xxxxxxxx the xxxxxxxx and balance xxx activities So xx order xx xxxxxx that xxxxx is a xxxx amount of xxxxx available xx x particular xxxxx and in xxxxx to ensure xxxxx the xxxxxxxxx xxxxxx of xxx company is xxx at a xxxxxx the xxxxxxx xxx thought xx certain strategies xxxxx will protect xxxx flows xxxxx xxxx operating xxxxxx So the xxxxxxx of downsizing xxx risk xx xxxxx increase xxx the crops xxx in order xx do x xxxxxxxxxxx business, xxx company should xx adopting hedging xxxxx Hedging xx x strategy, xxxxx in the xxxxxxxxxxxx protects their xxxx flows xxx xxx business xxx the near xxxxxxx and ensures xxxx the xxxxxxxxxxxxx xxx the xxxxxxxxxxx is not xx a risk xx the xxxxxxxxxx xx the xxxxxxx should ensure xxxx there is xxxxxxxx amount xx xxxxxxx strategies xxxxxxxx to protect xxx cash flows xx connection xxxx xxxxxx Foods, xxx us discuss xxxxx the following xxxxxxx strategies xxxxx xxxx support xxx business Future xxxxxxxxx A future xxxxxxxx is x xxxxxxxxxxx agreement xxxxxxx two parties xxx certain transactions xxxxx will xx xxxxxxx executed xx certain future xxxx The underlying xxxxxxxxxxxx in xxxx xxxx need xx be commodity xxx at a xxxxx which xx xxxxxxxxxxxxxx for xxx future Generally