This Tuesday evening at 7:05 p.m., Justin Wolfers, an economics professor at the University of Michigan, started a provocative Twitter thread about panic buying. Spurred by fear of the spreading coronavirus, shoppers have been mobbing stores worldwide. They’re stockpiling canned goods, flour, sugar, bottled water, hand sanitizer—and toilet paper.

In Australia, where Wolfers was born, one desperate customer reportedly pulled a knife trying to score the last roll on the shelf at a Woolworths Supermarket in Sydney.

Wolfers believes desperate buyers aren’t crazy. “The economics of toilet paper shortages is the same as bank runs,” he tweeted. You stockpile toilet paper because others are stocking up too, depleting supplies.

“My argument is simply that panic buying can be rational,” said Wolfers in a phone interview with Forbes on Wednesday. “There is nothing inherent in markets that prevents this.” Until the FDIC started guaranteeing bank deposits in 1933, it made sense for nervous savers to pull their money out when they saw their neighbors doing the same.

What can be done to preclude toilet paper shortage-sparked violence? “The U.S. needs a strategic toilet paper reserve,” said Wolfers, guaranteeing that Americans have the supplies they need should stores run out.

In all seriousness, what does Wolfers think fear-sparked buying means for U.S. retailers like Costco, Walmart, Target and Kroger? “In the short term it’s good news,” he says, because extra purchases spike revenues. But in the long run, it’s unlikely to change those companies’ fortunes. “Once they have more toilet paper, people aren’t going to poo more,” he says. They’ll wait until their supply runs out to make further purchases.

Oliver Chen, a retail analyst at Cowen in New York, says virus-driven panic buying is giving a boost to curbside services offered by companies like Target and Walmart. Target reported this week in an earnings call that once customers try the service, where they order and pay online and then pick up their purchases at a designated spot outside a store, they increase their spending at Target by 25%. Cowen estimates that only 10% to 11% of shoppers use the service, leaving plenty of room for growth.

One more plus for retailers: “When you use the curbside service, it increases your loyalty as a shopper,” says Chen. He predicts that panic buying will drive up sales by 1% to 2% in the first quarter at retailers who sell groceries and staples. Given that operating margins are a low 3% to 7%, even a small increase in sales is significant.

Sucharita Kodali, an analyst at Forrester, says many retailers have missed an opportunity to hike prices during the scare. “What should have been a winning lottery ticket these guys were handed, they basically squandered,” she says. Without gouging customers, stores could have easily hiked prices by 10% or more on staples and banked the extra profit. “A lot of retailers foolishly let that opportunity pass,” she says. (Most state price-gouging laws, barring increases of 10% or more, only kick in after a state of emergency has been called.)

Wolfers disagrees with Kodali about the wisdom of price hikes during a perceived public health crisis. “Costco’s implicit promise to the customer is, ‘We will never screw you,’” he says. “Raising prices on toilet paper would destroy that trust.”

Rupesh Parikh, a retail analyst at Oppenheimer, says Costco made the right call to hold prices steady. “Costco is a company that puts the customer at the center of everything they do,” he says.

Today Costco reported that February 2020 sales increased 13.8% over the previous year due to “concerns over the coronavirus.” Though Parikh rates the stock a “buy,” he doesn’t believe the Issaquah, Washington-based chain, whose revenue hit $155 billion last year, will benefit from coronavirus buying in the long run. Shoppers who bought extra staples in February will wait to replenish them, possibly causing a sales dip in coming months. “If people don’t use up their supplies, that poses a risk going forward,” he says.

In Australia, where there are 52 confirmed cases of coronavirus including 2 deaths, a Costco store in Canberra has reportedly set limits on toilet paper purchases. Customers can buy no more than two 48-roll packs at a time. That should last them a while.

Tasks:

Study “The Economics Of Panic Buying” online article above and complete the following tasks.

1. Describe your knowledge or experience with the panic buying that took place in Sydney/Melbourne.

2. Use the demand and supply model to describe the phenomenon of the panic buying which you describe in task 1 and illustrate the consequences of the panic buying on market equilibrium. Discuss whether there is an increase in demand or an increase in quantity demanded during the panic buying and explain your answer.   

3. Use the demand and supply model to illustrate the sellers’ responses to the panic buying, such as the curbside service provided by Target and Walmart. Discuss the impact of the curbside service on market equilibrium.

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5] Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows: Standard Quantity Standard Price (Rate) Standard Unit Cost Direct materials (clay) 1.70 lbs. $ 1.80 per lb. $ 3.06 Direct labor 1.70 hrs. $ 10.00 per hr. 17.00 Variable manufacturing overhead (based on direct labor hours) 1.70 hrs. $ 1.10 per hr. 1.87 Fixed manufacturing overhead ($402,500.00 ÷ 175,000.00 units) 2.30 Barley Hopp had the following actual results last year: Number of units produced and sold 180,000 Number of pounds of clay used 328,200 Cost of clay $ 623,580 Number of labor hours worked 225,000 Direct labor cost $ 3,082,500 Variable overhead cost $ 350,000 Fixed overhead cost $ 400,000 Required: 1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) 2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.) 3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5]

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp had the following actual results last year:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5]

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp had the following actual results last year:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Question I Value Derivatives

An investor is very bullish on LewCo, a nondividend paying company. The current spot price of the company’s equity is $50 per share. The investor is confident the company will solve the social distancing issue and that the value of the stock will be at least $100 in 12 months.

The investor uses a 12-period binomial tree assuming

S0 = $50

T = 12 months

r = 30 basis points per month

u=1.1 per month

d = 1/u= 1.1-1 per month 1.

1. Apply the binomial tree model to value a 12-month European style call with a strike of $100. What is the call premium?

2. Use put-call parity to value the put on the same asset, for the same expiration, and with the same strike. What is the put premium?

3. The investor is considering two other calls. One with a strike of $200. Another with a strike of $0. The values of these structures should be evident to you. What is the premium on the call with a strike of $200? Why? What is the premium on the call with the strike of $0? Why?

4. Why do investors use options? To answer this, we consider an investor with $5,000 to invest. Assume the spot price in 12 months is $100, as predicted by the investor. Calculate the amount the investor will make spending the $5,000 to buy shares of stock, spending the $5,000 to buy puts with a strike of $100, or spending the $5,000 to buy calls with a strike of $100? Based on this analysis, what is the advantage of using options?

5. What would be the premium of a derivative structure paying the square of the call payoff in each node of the terminal distribution?

(3) Malls face increasing completion from Amazon. Last year the average consumer spent $50 at the local mall. Is consumer spending decreasing? This year, in a random sample of shoppers, each was asked how much money she/he spent on the last trip to the local mall. Do they data support at a=10% significance level the research hypothesis that average shopper this year spent less that $50?

   a. What are the null and alternative hypotheses?

   b. What is the appropriate p-value?

   c. Can they infer at the 10% significance level that consumer spending decreased since last year? State your conclusion.

PA9-1 Calculating Direct Material, Direct Labor, Variable Overhead Variances [LO 9-3, 9-4, 9-5]

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp had the following actual results last year:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Walkenhorst Company’s machining department prepared its 2016 budget based on the following data:

PA9-5 Calculating Direct Materials, Direct Labor, Variable Manufacturing Overhead Variances [LO 9-3, 9-4, 9-5]

Bullseye Company manufactures dartboards. Its standard cost information follows:

Bullseye has the following actual results for the month of September:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

    

2. Calculate the direct labor rate, efficiency, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

    

3. Calculate the variable overhead rate, efficiency, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

    

The following table includes quarterly working capital levels for your firm for the next year.

If you choose to enter the year with $397,000 total in cash and maintain a minimum cash balance of $104,000?, what is your maximum?short-term borrowing?

This is the answer but I need someone to show me how to calculate this in excel. I need details for how the "cash at the beginning of the qrt" was calculated.

You must find the total working capital for each quarter and then subtract the permanent working? capital, which is the smallest working capital of the four quarters. This will give you the temporary working capital for each quarter.

The temporary working capital for each quarter are shown? below:

?Below, we determine the maximum amount of? short-term borrowing needed if the firm enters the year with $397,000 in cash.