Question

It costs a petroleum refinery $0.39 to refine one gallon of gasoline, and $0.39 to refine one gallon of natural gas. The refinery can sell gasoline for $2.11 per gallon, and can sell natural gas for $1.60 per gallon. Due to the refining process, the refinery must produce and sell twice as much natural gas as it does gasoline. If the refinery’s monthly overhead costs, not including production costs, are $180,000, how many gallons of natural gas will the refinery have sold when it breaks even each month? Round to the nearest whole gallon, if necessary.
a.
86,957
b.
141,732
c.
148,760
d.
217,392


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Let n = gallons natural gas and g = gallons gasoline. Given n = 2g, so g = n/2.

Revenue = 2.11(g) + 1.60(n) = 2.11(n/2) + 1.60n = 2.655n.
Production cost = 0.39(g + n) = 0.39(1.5n) = 0.585n.
Contribution toward overhead = 2.655n − 0.585n = 2.07n.

Set 2.07n = 180,000 → n = 180,000 / 2.07 ≈ 86,956.52 ≈ 86,957.

Answer: A (86,957).