National Fuel allows its customers to prepurchase heating oil in May 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 May will be

Question

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Swenson's gross profit is calculated by subtracting the cost of purchasing the oil ($3.00 per gallon for 400,000 gallons = $1,200,000) from the revenue generated by selling the oil ($3.50 per gallon for 400,000 gallons = $1,400,000). The difference is $200,000, which is Swenson's gross profit.

National Fuel Allows Its Customers to Prepurchase Heating Oil in May