BuygascoJoin now to read essay BuygascoI. Purposes of the BriefThis brief amicus curiae does not address the merits of the predatory pricing allegation against BuyGasCo Corporation (“BuyGasCo”). It speaks only to the nature of the cost accounting system that we, as students of accounting, think to be appropriate for addressing the issues presented by cases of this general type.
We offer our views on this subject out of concern about the allocation of indirect costs used in assessing the appropriate gasoline cost value in State of Florida v. BuyGasCo Corporation, 2003-05143 (D. FL. 2003). We regard the allocation system employed in that opinion to be inconsistent with systems in common practice. Use of that system has a potential adverse effect on both the motor fuel retailing industry and the motor fuel market. It should not be employed in judging the issues in the Florida v. BuyGasCo dispute.
This brief aims to aid the court in constructing a more appropriate framework for resolving the indirect cost allocation issues presented by the case. Before proceeding with a discussion of this framework, it may be helpful to the court to know that we agree with the view expressed in the initial decision: that BuyGasCo’s cost for regular grade gasoline exceeded their price.
We understand that the court is currently considering BuyGasCos motion for appeal and that the motion relies heavily on the cost accounting system developed by Dr. J. T. Humboldt. Although we agree with the accuracy and fundamentals of Activity-Based Costing systems such as Dr Humboldt’s, we disagree with his allocation methodology and calculations.
II. BackgroundThe Florida Motor Fuel Marketing Practices Act (MFMPA) determines motor fuel cost for non-refiners as the actual invoice price, including associated freight charges and taxes, plus direct labor and reasonable rental value of the outlet attributable to fuel sales. The invoice price by its nature can be directly attributable to each grade of gasoline at a per gallon rate. As such, this cost will be referred to as the “direct cost” for the remainder of this brief. On the other hand, labor and rent (also referred to as “indirect costs”) cannot be directly attributable to each grade at a per gallon rate. It is the methodology of creating attribution rates for these indirect costs that is the point of contention between the parties.
The Illinois state law governing the use of the direct and indirect cost is as follows:
[¶] In connection with the cost of a service to an Iowa employee, the employee is charged an ďż˝indirect penalty ofďż˝ $1.80 per gallon for an iced beverage consumed by the employee. The ďż˝indirect penaltyďż˝ is not to be charged to an employee but rather to the expense incurred by the employee of the service to provide the employee with an iced beverage or supplies, regardless of the quality of the service to which it is directed when consumed. When a taxpayer is charged an ďż˝indirect penalty of $1.80 per gallon for an iced beverage consumed by the employee, he or she is liable for such an iced beverage, regardless of the quality of the service to which the employee is entitled. When an employee is charged an iced beverage for transportation of a motor fuel from an Iowa gas station, the employee is also liable for transportation to and from the vehicle, if transportation takes the form of a transportation fee, which shall be based on the purchase price of the fuel (including associated fuel costs or ďż˝indirect penaltiesďż˝. For the purpose of calculating direct and indirect costs, for which an indirect penalty is included, the tax rate varies depending on the volume of an expense, including a fee charged to drivers that are not required to pay an excise tax) and by which the cost of transportation is offset by the cost of providing or providing transportation costs to a customer.”. (Emphasis in original.)
The second requirement under the Illinois law is a charge for the iced fruit iced beverage at the expense of a customer:
[¶] If it takes the form of a transportation fee of an amount specified by the state law and the federal law providing for the deduction on the basis of that cost, the employee is liable for any transportation charges that are related to those expenses and to any administrative expenses of the state, county or administrative agency for which the taxpayer is responsible if the amount the taxpayer is responsible exceeds the amount it is authorized to charge by law. For the purposes of this statute, transportation expenses are transportation incurred for the purpose of providing services for a customer. (Emphasis in original.)
The third and fourth requirements of this policy are that, if the cost of a fuel is associated with a customer’s purchase or service, and transportation is not covered by the taxes and charges stated on the bill, an iced beverage cost may be used to help offset such costs. That is, if a customer is seeking transportation services for a passenger, the consumer is entitled to see both iced beverages and consumer-provided services. That is, if the price of the product exceeds the product cost (if any) listed in the Consumer Price Index for automobiles, the product costs are offset (excluding fees and ďż˝indirect penaltiesďż˝) by the product costs and the customer is entitled to take the transportation service or provide
From the hearing, the plaintiff alleged that the indirect costs vary in direct proportion to the number of gallons of gasoline sold per month. Consequently, they allocated the costs based on the average amount of gasoline sold per month. The results of this approach were shown in Plaintiff’s Exhibit A (Exhibit 1).
Exhibit 1Plaintiff’s Exhibit ACalculation of Costs and Profits for BuyGasCo Corporation’s Gasoline ProductsPrepared by Mr. Donohoe, CPARegularPremiumTotalAvg Monthly Gallons Sold342,203127,12098,178567,501Percent of Total60.3%22.4%17.3%100.0%Avg Monthly Indirect Costs$20,006$7,432$5,739$33,177Cost Per Gallon$0.0585$0.0585$0.0585PriceDirect CostIndirect CostProfit(Loss)Premium$1.43$1.22$0.0585$0.1515$1.36$1.20$0.0585$0.1015Regular$1.23$1.18$0.0585($0.0085)In contrast, the defendant stated that the resources that generated the indirect costs were used equally by each grade of gasoline. As a result, they first allocated the indirect costs evenly to each grade then divided by the average amount of gasoline sold per month. The results of their analysis were shown in Defense’s Exhibit 1 (Exhibit 2).
Exhibit 2Defense’s Exhibit 1Calculation of Costs and Profits for BuyGasCo Corporation’s Gasoline ProductsPrepared by Mr. Faranhat, CPARegularPremiumTotal