Question

1(b): You are the operations manager at your firm. Due to a pre-existing contract, you have the opportunity (but not the obligation) to acquire 30,000 barrels of gasoline and 50,000 barrels of heating oil for a total cost of $7,500,000. The current market price of gasoline is $2.0785 per gallon and for heating oil is $93.08 per barrel. One barrel = 42 gallons. You are not sure that your firm needs all of the gasoline or heating oil. As a result, you are wondering if you should take this opportunity. Should you ACCEPT or REJECT this opportunity? a. You should accept this opportunity because it offers positive value (benefits > costs). b. You should accept this opportunity because it offers negative value (costs > benefits). c. You should reject this opportunity because it offers positive value (benefits > costs). d. You should reject this opportunity because it offers negative value (costs > benefits). 1 points]

Answer 1

You should reject because it offers negative value.

Step-by-step explanation:

Giving the following information:

You have the opportunity to acquire 30,000 barrels of gasoline and 50,000 barrels of heating oil for a total cost of $7,500,000. The current market price of gasoline is $2.0785 per gallon and heating oil is $93.08 per barrel. One barrel = 42 gallons.

We need to find the total cost of the offer based on the current market prices.

Gasoline= (30000 barrels*42)*2.0785= $2,618,910

Heating oil= 50000*93.08= $4,654,000

Total cost= $7,272,910

It is cheaper to buy whatever quantity is necessary in the market.