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Originally Posted by Yakk
So, you have 100,000 gallons of gas in your underground tank. You bought it last week for 3$/gallon.
Next week, you can buy gas for 4$/gallon.
Someone comes by, and offers to buy 100 gallons of gas from you at 3.25$/gallon. Do you sell him gas?
1> You sell him gas. You earn 325$, and place it in a bank account that earns 6%/year. Next week, you have to buy 100 more gallons of gas. You earn 36 c in interest, and pay 400$ more for gas next week.
Total loss: $74.64
2> You don't sell him gas.
Total loss: $0
I think you don't sell him gas.
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You're confusing Cost of Goods Sold with pure cashflow.
If you buy product at price X and sell it at price X + Y, then your profit on that product is Y. Plain and simple. I don't care who's coming with more product next week at price Z. You better price THAT product at Z + Y if you want to maintain your margin. THIS week's product's margin is figured based on a cost of X.