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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%)Answer (show you calculation) 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%)Answer (show your calculation) c. At the end of the year, Marathon’s LIFO reserve was $684 million. If the company had used FIFO, what would the inventory valuation charge have been? Answer (show your calculation)

Question

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%)
Answer (show you calculation)

 

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%)
Answer (show your calculation)

 

c. At the end of the year, Marathon’s LIFO reserve was $684 million. If the company had used FIFO, what would the inventory valuation charge have been? 

Answer (show your calculation)

check_circleAnswer
Step 1

Gross Profit margin is an operating ratio that represents the financial health of the company.

It is computed as a percentage of Sales revenue.

Gross Profit Margin = (Revenue – Cost of Revenue) ÷ Revenue

Step 2

Given:

Revenue - $72,051

Cost of Revenue - $55,583

Gross Profit Margin (Revenue - Cost of Revenue) Revenue
Gross Profit Margin (72051 - 55583) 72051
= 16468 72051
22.85%
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Gross Profit Margin (Revenue - Cost of Revenue) Revenue Gross Profit Margin (72051 - 55583) 72051 = 16468 72051 22.85%

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Step 3

In case the inventory did not consider the adjustment for inventory, then the closing inventory wo...

Gross Profit Margin in case adjustment not recorded
Revenue $72,051
Cost of Revenue - $55,583 - $345
$55,238
Gross Profit Margin (72051 -55238) 72051
=16813 72051
=23.33 %
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Gross Profit Margin in case adjustment not recorded Revenue $72,051 Cost of Revenue - $55,583 - $345 $55,238 Gross Profit Margin (72051 -55238) 72051 =16813 72051 =23.33 %

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