Case 1 You have been hired as a consultant for Thomas Foods. Thomas Foods was in

Question

Case 1

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.

.In a minimum of 10 to12 sentences, describe your initial thoughts regarding the case and the challenges you feel you will face with regards to the depth and complexity of the issues that will be addressed.

Explanation / Answer

Answer: As a consultant, I will have to implement a hedging strategy to migate the risks associated with unexpected increases in prices grocery stores would have to pay the farmers to harvest crops. Think of hedging as an insurance against negave events. When the farmer hedges against the unexpected increase in price, the impact will be reduced. The downside of hedging Thomas Foods is that it will cost them a good amount of money but risk is an essenal element when invesng, especially when invesng to prevent big damages when sudden changes occur. I will address examples of how the company could implement the strategies and explain to the controller of the company how the hedging strategy would impact the operang income in this course project report.

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