Lower of Cost or Market AdjustmentMarathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $72,051 million and $55,583 million respectively in 2015.Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of theseinventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as aresult, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market.a. Compute gross profit margin for 2015.Round answer to one decimal place (ex: 0.2345 = 23.5%)22.9%b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment?Round answer to one decimal place (ex: 0.2345 23.5%)23.3c. At the end of the year, Marathon's LIFO reserve was $684 million. If the company had used FlFO, what would the inventory valuation charge have been?x million0

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Asked Oct 5, 2019
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Please see the attached image and answer letter C.  Please show how FIFO and LIFO is calclulated as well as the answer to c.

 

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Lower of Cost or Market Adjustment
Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $72,051 million and $55,583 million respectively in 2015.
Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these
inventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as a
result, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market.
a. Compute gross profit margin for 2015.
Round answer to one decimal place (ex: 0.2345 = 23.5%)
22.9
%
b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment?
Round answer to one decimal place (ex: 0.2345 23.5%)
23.3
c. At the end of the year, Marathon's LIFO reserve was $684 million. If the company had used FlFO, what would the inventory valuation charge have been?
x million
0
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Lower of Cost or Market Adjustment Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $72,051 million and $55,583 million respectively in 2015. Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as a result, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market. a. Compute gross profit margin for 2015. Round answer to one decimal place (ex: 0.2345 = 23.5%) 22.9 % b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment? Round answer to one decimal place (ex: 0.2345 23.5%) 23.3 c. At the end of the year, Marathon's LIFO reserve was $684 million. If the company had used FlFO, what would the inventory valuation charge have been? x million 0

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Expert Answer

Step 1
and LIFO both are the methods of Inuentory
FIFO
the values f
Valuarien and au usid to calculate
ending balana inuuntony
Cast of good -iold and
whun the FIFO mathad is wud, ololest units of inuantor
aru doldirst and ae included in the cal culation
o cost of goods dold. When the LIFO method is wed
are iwed first
in cluded in
mast recent unit oy inuentory
and mast vetent purchased inuentorias
the calulation o cost
arre
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and LIFO both are the methods of Inuentory FIFO the values f Valuarien and au usid to calculate ending balana inuuntony Cast of good -iold and whun the FIFO mathad is wud, ololest units of inuantor aru doldirst and ae included in the cal culation o cost of goods dold. When the LIFO method is wed are iwed first in cluded in mast recent unit oy inuentory and mast vetent purchased inuentorias the calulation o cost arre

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Step 2
Ansuer to pcint
Inuentoxy Valuahion charge under FIFO methad uill be
caluslatid as fellouu
$684 million
LIFO eve
Imuentery valuaion change (LIFO method) = $345 million
Inuuntory Valuaion change (FIFO). LIFO reseriu + Inuenrory
Valuaton charge (LIFO)
$684+$345
$1,029 million
Theufere, Inuuntery Valuation charge under FlFO methed
i L029 million
Inuentory valuarion charge has been calculatid by aolding
LIFO es and amount of nuentory valuation charge
because LIFO ruere shous the
under LIFO methed
difference behucen FIFO and LIFO mehodl valuati on.
Alo, FIFO inntory valuahion charge i highere
higher in
because amount of ending inuamtory
LIFO
lower in
metrod
FIFO methad and
help_outline

Image Transcriptionclose

Ansuer to pcint Inuentoxy Valuahion charge under FIFO methad uill be caluslatid as fellouu $684 million LIFO eve Imuentery valuaion change (LIFO method) = $345 million Inuuntory Valuaion change (FIFO). LIFO reseriu + Inuenrory Valuaton charge (LIFO) $684+$345 $1,029 million Theufere, Inuuntery Valuation charge under FlFO methed i L029 million Inuentory valuarion charge has been calculatid by aolding LIFO es and amount of nuentory valuation charge because LIFO ruere shous the under LIFO methed difference behucen FIFO and LIFO mehodl valuati on. Alo, FIFO inntory valuahion charge i highere higher in because amount of ending inuamtory LIFO lower in metrod FIFO methad and

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