British Petroleum (BP) is one of the world€™s largest oil exploration, refining, and petrochemical firms. (British Petroleum and Amoco merged in December 1998.) The following data are adapted from BP Amoco€™s 2007 annual report. All numbers are in millions of U.S. dollars.

In the financial statement notes, BP Amoco explains that inventory holding gains and losses represent the difference between the replacement cost of sales and the historical cost of sales (calculated using FIFO). Replacement cost reflects the average cost of goods acquired during the year.
1. Consider the relationships among replacement cost of sales, LIFO cost of sales, and FIFO cost of sales. Estimate what BP Amoco€™s gross profit for 2007 and for 2006 would be using LIFO. Explain your calculations.
2. Estimate what BP Amoco€™s gross profit for 2007 and for 2006 would be using FIFO. Explain yourcalculations.

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2007 2006 Sales and other operating revenues Purchases (COGS at historical cost) Historical cost gross profit. inventory holding galn (loss) Replacement cost gross profit $284,365 $265,906 A*.2 200,766 187,183 83,599 78,723 87,157 78,470 3,558 (253)