Temple Manufacturing frequently buys palladium from Precious Metals, Inc. Precious Metals requires a firm six-month commitment in order to do business with them. On January 1, 2011, Temple enters into a contract with Precious Metals to purchase 10,000 pounds of palladium at the current forward price of $315 per pound with settlement to occur on June 30, 2011. Temple wants to actually pay the market price for palladium as of June 30. Temple enters into a forward contract to sell 10,000 pounds of palladium at the current forward price of $315 per pound. The firm commitment contract and the forward contract both have zero value at inception. Palladium spot prices and the contract fair values are: Forward Contract Fair Value Spot Price Price (June 30) Forward Firm Commitment January 1 $300 $315 -0- -0- March 31 295 300 $147,100 ($147,100) June 30 280 N/A 350,000 ( 350,000) 1. Why did Temple hedge its fixed price contract with Precious Metals? 2. Did management make a good or bad decision? Explain. 3. What journal entry should be made on March 31? 4. What price did Temple end up paying for the palladium after accounting for the forward contract? Show how you determined the price. 5. Would this have been a good hedge if the settlement price of the forward contract on June 30 was $300?