Question

You own and operate a gasoline station. You started your business on May 1. At your site you have one, and only one, 30,000-gallon tank for regular, unleaded, 87 octane gasoline. Your station sells only 87 octane gasoline.

On April 30, your tank is MT. That same day you take delivery of the following amounts of gasoline:

8200 gallons @ $1.88 per gallon

8000 gallons @ $1.97 per gallon

9200 gallons @ $2.10 per gallon

All prices include all taxes and delivery charges

You sold no gas on April 30; you opened business on May 1

Assume no losses due to leaking tanks, evaporation or theft

Sales for May 1 thru 31:

7100 gallons @ $2.249

8800 gallons @ $2.099

6600 gallons @ $2.149

You are to calculate:

A) Average cost per gallon of gas in inventory on April 30

B) Inventory, in gallons, at end of business on May 31

C) Average selling price per gallon for May

D) Gross margin $ for May (gross sales $ of gas minus cost).

Answer 1

• All working forms part of the answer
• Working #1: Total purchases in amount $ and in gallons

Gallons purchased	Cost per gallon	Amount
8,200.00	$                                           1.880	$                  15,416.00
8,000.00	$                                           1.970	$                  15,760.00
9,200.00	$                                           2.100	$                  19,320.00
25,400.00 gallons total		$                  50,496.00 TOTAL

• Requirement ‘A’

A	Total Amount of purchases	$                                   50,496.00
B	Total gallons purchased	25,400.00
C = A/B	Average cost per gallon of gas on April 30	$                                           1.988 ANSWER

• Working #2

Gallons sold	Sale price per gallon	Amount of Sales
7,100.00	$                                           2.249	$                  15,967.90
8,800.00	$                                           2.099	$                  18,471.20
6,600.00	$                                           2.149	$                  14,183.40
22,500.00		$                  48,622.50

• Requirement ‘B’

A [working #1]	Total Gallons purchased	25,400.00
B [working #2]	Total gallons sold	22,500.00
C = A - B	Inventory, in Gallons at the end of May 31	2,900.00 gallons = ANSWER

• Requirement ‘C’

A	Total Amount of Sales	$                                   48,622.50
B	Total gallons sold	22,500.00
C = A/B	Average selling price per gallon	$                                           2.161 per gallon = ANSWER

• Requirement ‘D’

A [working #2]	Total Amount of Sales	$                                   48,622.50
B = 22500 gallons sold x $1.988 working #1]	Total cost of gallons sold	$                                   44,730.00
C = A - B	Gross Margin	$                                     3,892.50