Question: Cost-plus and market-based pricing. Georgia Temps, a large labor contractor, supplies contract labor to building-construction companies. For 2017, Georgia 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%.
1. Calculate the price per hour that Georgia 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
10 61,000
Georgia 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 Georgia Temps should charge to maximize operating income.
3. Comment on your answers to requirements 1 and 2. Why are they the same or different?