Audit Case - 1

BuyGasCo Corporation: The Use of Alternative Costing Methods in a Predatory Pricing Lawsuit 1 BACKGROUND2 BuyGasCo Corporation (BuyGasCo) is a major national chain of retail motor fuel (gasoline) service centers. This privately held company is very successful and has been in existence for 35 years. The service centers, owned and operated by BuyGasCo, are straightforward and typical of those in the industry. The main function of these service centers is to sell gasoline. The company sells three types of gasoline: regular (87 octane), plus (89 octane), and premium (93 octane). Each service center also sells commodities such as coffee, candy, sodas, and miscellaneous grocery items. The success of this company is mainly attributable to its low-cost strategy. Since its inception, BuyGasCo has attempted to be a low-cost distributor of gasoline. The operations at each service center are designed to be simple in order to keep costs at a minimum. This company does not spend excessively on things deemed to be unnecessary to the basic operations and success of the business, such as widespread advertising and extensive facilities modernization. For example, the company uses targeted sales advertising and promotions that have proven records of success. BuyGasCo passes cost savings on to the consumer by offering gasoline at the lowest possible price. This company has earned a good reputation among consumers and has a significant and growing portion of the retail gasoline national market share. Due to the fact that BuyGasCo is a national market leader, its major competitors are constantly seeking ways to gain market share and entice customers away from BuyGasCo. Earlier this year, Bill Hudson (CEO of BuyGasCo) received notice that one such competitor, Uncle Petroleum (UP), had filed a complaint with the Division of Standards in the Florida Department of Agriculture and Consumer Services (FDACS). The complaint stated that BuyGasCo was in violation of the Florida Motor Fuel