Question

Swenson Oil​ & Gas allows its customers to prepurchase heating oil in June for the coming winter. Customers who took advantage of the offer prepurchased​ 400,000 gallons of oil at​ $3.50 per gallon. Swenson hedged its position by contracting to purchase​ 400,000 gallons of oil for November delivery at a price of​ $3.00 per gallon. If the November spot price is​ $3.85 per​ gallon, Swenson's gross profit on the heating oil sold in June will be

Answer 1

Answer:

$200,000

Explanation:

The calculation of gross profit on the heating oil sold in June is shown below:-

Gross profit = Prepurchased × (Prepurchased per gallon - Delivery at a price)

= 400,000 gallon × ($3.50 per​ gallon - $3.00 per gallon)

= 400,000 gallon × $0.5

= $200,000

Therefore for computing the gross profit on the heating oil sold in June we simply applied the above formula.