A Gasoline Distributor Buys a Gasoline Futures Contract That Requires

question 106

Multiple Choice

A gasoline distributor buys a gasoline futures contract that requires acceptance of 42,000 gallons of gasoline at $0.94 per gallon.How is the account marked to market if gasoline futures close the next day at $0.97?

• A) A loss of $1,260 is posted to the account.
• B) A gain of $1,260 is posted to the account.
• C) A loss of $12,600 is posted to the account.
• D) A gain of $12,600 is posted to the account.

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Definitions:

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product and are a significant component of the total manufacturing cost.

Variable Manufacturing Overhead

Costs involved in the manufacturing process that fluctuate with the level of production, such as utility expenses or materials costs.

Absorption Costing

An accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Absorption Costing

This method includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.