Table: Constant Cost Industries as of July 2011, Oil

question 164

Multiple Choice

Table: Constant Cost Industries As of July 2011, oil companies had a 6.5 percent profit margin (for each dollar of sales, 6.5 cents was profit) , ranking 131 (profit margin is the far right column) . Other industries making the same profit margin include packaging and containers, office supplies, farm and construction, and newspapers. If these profits are typical, what does this similar profit margin across very different industries suggest about oil companies' profits?

• A) They are making zero profits.
• B) They are making above-average profits and should expect entry.
• C) They are making above-average profits and should expect no entry or exit.
• D) Nothing because it is the total profits that matter, not profits per dollar of sales.

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Definitions:

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all items available for sale during the period, weighted by the number of units.

Costs Per Equivalent Unit

A calculation used in process costing that distributes costs evenly across units produced, factoring in various stages of completion.

Weighted-Average Method

An inventory costing method that assigns cost to inventory on the basis of the average cost of all similar goods available during the period.

Equivalent Units of Production

A conversion of partially completed units into a number of fully completed units during a period, used in process costing systems.