Connect Online Access for Operations Management
Connect Online Access for Operations Management
14th Edition
ISBN: 9781260242355
Author: William J. Stevenson
Publisher: Mcgraw-hill Higher Education (us)
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Chapter 14, Problem 10DRQ
Summary Introduction

To determine: The benefits and risks of small lot sizes.

Introduction: Lot size refers to the amount of a product requested for conveyance on a particular date or made in a single manufacturing run. Lot size fundamentally refers to the aggregate amount of an item requested for assembling. In budgetary markets, lot estimate is a measure or amount increase to reasonable or précised by the gathering which is putting forth to purchase or offer it.

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You ordered 1,000 tons of cocoa beans, which will be delivered to your chocolate manufacturing plant in PA in March next year. The current price of cocoa beans, as of today, is $2,260 per ton. There is an investor company who currently offers two types of risk hedging contracts: -Forward contract: $2,400 per ton at a fixed cost of $30,000. -Futures contract: $2,400 per ton at a cost of $50 per ton (therefore, the up-front cost is 1000 tons * $50 per ton = $50,000) Assume that the price of cocoa beans went down to $2,200 per ton in March 2023. How much would you need to pay for 1,000 tons of cocoa beans under the futures contract?
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