Question

Butcher Enterprises has experienced substantial employee turnover among its office workers. During exit interviews, more than 80 percent stated that low pay was the top reason for resigning. The company conducted a survey of local companies’ pay practices to confirm whether this concern is valid. Indeed, Butcher Enterprises’ average hourly pay rate for total compensation falls well below the market. The compensation survey showed an average hourly rate of $23 for total compensation. Of this amount, wages are $16 per hour and benefits are $7 per hour. In comparison, Butcher Enterprises spends an average hourly rate of $19 for total compensation. Of this amount, 70 percent is allocated for wages.
Questions:

On an average hourly basis, how much does Butcher Enterprises spend on wages and benefits, respectively, in dollars?

How much does the company spend on wages and benefits over the course of one year for 100 office workers? Assume that each worker provides 2,080 hours of service each year.

How much additional money does the company need to match the market rates for this group of 100 employees?

Answer 1

Answer:

1. Respectively, Butcher Enterprises spend $13.3 and $5.7 in Wages and Benefits.
2. Total Wage Spend in 1 year: $2766400, Total Wage Spend in 1 year: $1185600.
3. Additional money to match the market rates for 100 Employees: $400.

Explanation:

First, we have to split the data given to us into 2:

• Survey

Average hourly rate: $23 (Total Compensation)

This rate falls into two categories

Wage per hour: $16          Benefits per hour: $7

(Note that Wage + Benefits = Total Compensation)

• Butcher Enterprises

Average hourly rate: $19 (Total Compensation)

Again, this rate falls into two categories and it says that Wages are 70% of Total Compensation, and the Benefits must be the rest of the Total Compensation

Wage per hour = (Total Compensation) x 0.7 = $19 x 0.7 = $13.3

Benefits per hour = (Total Compensation) - (Wage) = $19 - $13.3 = $5.7

If the company has 100 workers and each worker provides 2080 hours of service each year, the company spend:

Total Wage spend in 1 year = $13.3 * 100 * 2080 = $2766400

Total Benefits spend in 1 year = $5.7 * 100 * 2080 = $1185600

The difference of the market rates that the survey show between the Butcher Enterprises Total Compensation should show the additional money the company needs to match the market rates per employee

Additional money per Employee = (Survey Total Compensation) - (Company Total Compensation) = $23 - $19 = $4

And for 100 employees

Additional money for 100 Employees = $4 * 100 = $400