12-32 Cost-plus and market-based pricing. Florida Temps, a large labor contractor, supplies contract labor to building-construction companies. For 2012, Florida Temps has budgeted to supply 84,000 hours of contract labor. Its variable costs are $13 per hour, and its fixed costs are $168,000. Roger Mason, the general manager, has proposed a cost-plus approach for pricing labor at full cost plus 20%.

Required
1. Calculate the price per hour that Florida Temps should charge based on Mason’s proposal.

2. The marketing manager supplies the following information on demand levels at different prices:
Price per Hour Demand (Hours)
$16……………………..124,000
17………………………104,000
18………………………..84,000
19………………………..74,000
20……………………….61,000
Florida Temps can meet any of these demand levels. Fixed costs will remain unchanged for all the demand levels. On the basis of this additional information, calculate the price per hour that Florida
Temps should charge to maximize operating income.

3. Comment on your answers to requirements 1 and 2. Why are they the same or different?

 

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12. A fixed income money manager has a bond portfolio with a 70 percent allocation to longterm bonds and a 30 percent allocation to short-term bonds. The portfolio is currently valued at $75 million. The manager wishes to reduce the long-term bonds allocation to 55 percent and increase the short-term bonds allocation to 45 percent for a period of three months. The modified duration of the long-term bonds is 7.5 and of the short-term bonds is 4.5. A bond futures contract that expires in three months is priced at $95,750 and has a modified duration of 6.25. Assume that the modified duration of cash equivalents is 0.25. Also assume that interest rates that drive long-term and short-term bond prices have a yield beta of 1 with respect to interest rates that drive the bond futures market. A. Show how the manager can achieve his goals by using bond futures. Indicate the number of contracts and whether the manager should go long or short. B. After three months, the short-term bonds are down 5.63 percent and long-term bonds are down 9.38 percent. The bond futures price is $88,270. Compare the market value of the portfolio using futures to adjust the allocation with the market value of the same portfolio using direct bond trading to adjust the allocation.

 

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12) Suppose a consumer’s income increases from $60,000 to $72,000. As a result, the consumer increases her purchases of compact disks (CDs) from 50 CDs to 60 CDs. What is the consumer’s income elasticity of demand for CDs (arc or midpoint formula)? Please explain the steps. A) 2.0 B) 1.5 C) 0.5 D) 1.0

 

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12.   The Student Government Association at Middle Carolina University wanted to demon- strate the relationship between the number of beers a student drinks and their blood alcohol content (BAC). A random sample of 18 students participated in a study in which each participating student was randomly assigned a number of 12-ounce cans of beer to drink. Thirty minutes after consuming their assigned number of beers a member of the local sheriff’s office measured their blood alcohol content. The sample information is reported below.

Student

Beers

BAC

 

Student

Beers

BAC

1

6

0.10

10

3

0.07

2

7

0.09

11

3

0.05

3

7

0.09

12

7

0.08

4

4

0.10

13

1

0.04

5

5

0.10

14

4

0.07

6

3

0.07

15

2

0.06

7

3

0.10

16

7

0.12

8

6

0.12

17

2

0.05

9

6

0.09

18

1

0.02

 

Use a statistical software package to answer the following questions.

a.   Develop a scatter diagram for the number of beers consumed and BAC. Comment on the relationship. Does it appear to be strong or weak? Does it appear to be positive or inverse?

b.  Determine the correlation coefficient.

c.   At the .01 significance level, is it reasonable to conclude that there is a positive rela- tionship in the population between the number of beers  consumed  and  the BAC? What is the p-value?

 

 

 

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12. Which of the following is most likely to occurif the Federal Reserve engages in open market operations to reduce inflation? (A) A decrease in interest rates B) A decrease in reserves in the banking system C) A decrease in the govemment deficit D) An increase in the money supply increase in exports pon

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