Butcher Enterprises has experienced substantial employee turnover among its offi

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:

1-7. On an average hourly basis, how much does Butcher Enterprises spend on wages and benefits, respectively, in dollars?

1-8. 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.

1-9. How much additional money does the company need to match the market rates for this group of 100 employees?

Explanation / Answer

1- 7. Computation of Wages and Benefits per hour Separately

Wages per Hour = Total Compensation * Allocation for Wages

Wages per Hour = $19 * 70% = $13.30 per Hour

Benefits per Hour = Total Compensation * Allocation for Benefits

Benefits per Hour = $19 * 30% = $5.70 per Hour

1 - 8 Total Compensation for 100 Office Workers

Wages for 100 Workers = Workers * Wages per Hour * No. of Hours

Wages for 100 Workers = 100 * $13.3 * 2080 = $2766400

Benefits for 100 Workers = Workers * Benefits per Hour * No. of Hours

Benefits for 100 Workers = 100 * $5.7 * 2080 = $1185600

1 - 9: Additional Money Required to Match with Market

Additional Money = (Compensation in Market per Hour - Compensation in the Company per hour) * 100 Employees * No. of Hours

Additional Money = ($23 - $19) * 100 Employees * 2080 = $832000

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