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Question - Waterway Recyclers buys used motor oil for $1.00 per litre from shops that specialize in oil changes and other minor services for cars. The cost of transporting and refining the motor oil is $1.25 per litre. The refined oil becomes commercial-grade motor oil and a thick residual fuel oil. Each litre of used motor oil yields 0.7 L of commercial-grade motor oil and 0.3 L of residual fuel oil. Commercial-grade motor oil is sold for $3.50 per litre, and residual fuel oil is sold for $1.50 per litre.
If the costs of purchasing and processing the used motor oil were allocated on the basis of physical output, what would be the inventory cost of residual fuel oil?
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