What Makes Up the Cost of Gasoline?When you buy a gallon of gasoline, what are you paying for? Here’s a breakdown of the four biggest cost factors:* Cost of crude oil is about 48% of the price. * Federal and state taxes make up about 23% of the price. (In Tennessee the combined state and federal tax is 39.8 cents per gallon, so when you buy 10 gallons of gasoline you’re paying about $4.00 in state and federal tax.)* Refining costs and margins is about 18% of the price.* And all other distribution and marketing costs are about 12% of the price. This includes transportation, storage, credit card fees (typically 2 to 4 percent), cost of doing business, sales taxes, and the retailer’s gross margin. Actually, nearly 90 percent of the cost of a gallon of gasoline is determined before it even reaches local convenience store or service station. What Makes the Price Go Up and Down?
Price of Crude Oil: Crude oil prices are determined by the world market. OPEC has the greatest potential to affect prices, since it controls about 40% of the world’s oil production and 67% of the world’s crude oil reserves. Other factors can also affect the price of crude oil, such as supply disruptions caused by overseas events or natural disasters, or even rumors or speculation of potential shortages.
A change in world crude oil prices can lead to a change in the wholesale price for gasoline that your local retailer pays to provide you with fuel. Retailers must react to these wholesale price changes, changes they have no control over and, in today’s electronic world, are communicated, and often times placed into effect nearly immediately, sometimes several times a day.
Supply and Demand: Crude oil is “refined” into several different fuels and oil-based products, such as gasoline for automobiles, diesel fuel, heating oil, jet fuel, or chemical products Changes in demand of any of these crude oil-based products can affect gasoline prices. Weather also has an impact – demand for gasoline increases in the spring and summer months as people drive more. However, this increased demand also increase prices for crude oil, much the way more bids for an auction item increase the price. In addition, government regulations affect the price you pay at the pump.
Process costingProcess costing is used when there is mass production of similar products, where the costs associated with individual units of output cannot be differentiated from each other. In other words, the cost of each product produced is assumed to be the same as the cost of every other product. Under this concept, costs are accumulated over a fixed period of time, summarized, and then allocated to all of the units produced during that period of time on a consistent basis. When products are instead being manufactured on an individual basis, job costing is used to accumulate costs and assign the costs to products. When a production process contains some mass manufacturing and some customized elements, then a hybrid costing system is used. Examples of the industries