You are a finance student helping your cousin who owns a Deli / Sandwich Shop. H
ID: 2583806 • Letter: Y
Question
You are a finance student helping your cousin who owns a Deli / Sandwich Shop. He is struggling with the decision about what will be the impact if the minimum wage by 2018.
He has developed a set of schedules with the salary budget, HR costs, and the proforma P & L for the current year.
He asks you to develop estimated P & Ls assuming that he has to bring all employees in line with the minimum wage by 2019. At the same time he would plan a 3% per year cost of living adjustment for all of the other hourly employees.
What is the impact of complying with the minimum wage? (Do proforma p & l)
What sales level is necessary to maintain the same profit margin through 2019, with these wage adjustment?
What course of action can you recommend?
Explanation / Answer
What is the impact of complying with the minimum wage? (Do proforma p & l)
Proforma P&L
Year 1
Year 2
Year 3
Gross Sales
608,900.00
608,900.00
608,900.00
Direct Cost of sales, less labor (30%)
182,670.00
182,670.00
182,670.00
Other Kitchen expenses (6%)
36,534.00
36,534.00
36,534.00
Total Cost of Slaes
219,204.00
219,204.00
219,204.00
Gross Margin
389,696.00
389,696.00
389,696.00
Expenses:
Total Payroll
295,681.00
300,256.00
309,461.00
Benefits
28,750.00
34,500.00
34,500.00
FICA
22,160.60
22,969.58
23,673.77
UE
1,350.00
1,350.00
1,350.00
HR expenses
347,941.60
359,075.58
368,984.77
Sales and Marketing Expenses
-
-
-
Utilities
2,400.00
2,400.00
2,400.00
Insurance
5,000.00
5,000.00
5,000.00
Depreciation
-
-
-
Other
-
-
-
Total Operating Expenses
355,341.60
366,475.58
376,384.77
Profit before interest and taxes
34,354.40
23,220.42
13,311.23
Salary Schedule (Year 2) 2017
Employee
Employee name
Hours
Weeks
Hours
Rate
Weekly $
Annual $
Weekly
work
Annual
1
Larry - Owner Manager (sal)
51
$ 60,000
2
Monti - Owner Manager (sal)
51
$ 55,000
3
General Manager
46
50
2300
$ 15
$ 34,500
4
Manager -front
38
51
1938
$ 12
$ 23,256
5
Manager back
50
51
2550
$ 10
$ 25,500
6
Manager front 2
33
50
1650
$ 12
$ 19,800
7
Register takes orders
25
50
1250
$ 9
$ 11,250
8
grill person
29
50
1450
$ 9
$ 13,050
9
Hogie guy
30
50
1500
$ 10
$ 14,250
10
Helper
22
50
1100
$ 9
$ 9,900
11
Helper - 1
45
50
2250
$ 9
$ 20,250
12
Helper 2
15
50
750
$ 9
$ 6,750
13
Helper 3
15
50
750
$ 9
$ 6,750
Total Salary budgeted
$ 300,256
Benefit Schedule:
Health Benefit for employess @ 30%
Both Owner managers
$115,000
30%
$ 34,500.00
FICA taxes:
All employees
7.65%
$300,256
$ 22,969.58
UE tax:
1% of $9000 due on all employees
$ 1,350.00
Total HR costs:
Salary
$ 300,256.00
Benefits
$ 34,500.00
FICA
$ 22,969.58
UE
$ 1,350.00
Total HR cost
$ 359,075.58
Salary Schedule (Year 3) 2018
Employee
Employee name
Hours
Weeks
Hours
Rate
Weekly $
Annual $
Weekly
work
Annual
1
Larry - Owner Manager (sal)
51
$ 60,000
2
Monti - Owner Manager (sal)
51
$ 55,000
3
General Manager
46
50
2300
$ 15.00
$ 34,500
4
Manager -front
38
51
1938
$ 12.00
$ 23,256
5
Manager back
50
51
2550
$ 10.00
$ 25,500
6
Manager front 2
33
50
1650
$ 12.00
$ 19,800
7
Register takes orders
25
50
1250
$ 10.10
$ 12,625
8
grill person
29
50
1450
$ 10.10
$ 14,645
9
Hogie guy
30
50
1500
$ 10.10
$ 15,150
10
Helper
22
50
1100
$ 10.10
$ 11,110
11
Helper - 1
45
50
2250
$ 10.10
$ 22,725
12
Helper 2
15
50
750
$ 10.10
$ 7,575
13
Helper 3
15
50
750
$ 10.10
$ 7,575
Total Salary budgeted
$ 309,461.00
Benefit Schedule:
Health Benefit for employess @ 30%
Both Owner managers
$115,000
30%
$ 34,500.00
FICA taxes:
All employees
7.65%
$309,461
$ 23,673.77
UE tax:
1% of $9000 due on all employees
$ 1,350.00
Total HR costs:
Salary
$ 309,461.00
Benefits
$ 34,500.00
FICA
$ 23,673.77
UE
$ 1,350.00
Total HR cost
$ 368,984.77
Proforma P&L
Year 1
Year 2
Year 3
Gross Sales
608,900.00
608,900.00
608,900.00
Direct Cost of sales, less labor (30%)
182,670.00
182,670.00
182,670.00
Other Kitchen expenses (6%)
36,534.00
36,534.00
36,534.00
Total Cost of Slaes
219,204.00
219,204.00
219,204.00
Gross Margin
389,696.00
389,696.00
389,696.00
Expenses:
Total Payroll
295,681.00
300,256.00
309,461.00
Benefits
28,750.00
34,500.00
34,500.00
FICA
22,160.60
22,969.58
23,673.77
UE
1,350.00
1,350.00
1,350.00
HR expenses
347,941.60
359,075.58
368,984.77
Sales and Marketing Expenses
-
-
-
Utilities
2,400.00
2,400.00
2,400.00
Insurance
5,000.00
5,000.00
5,000.00
Depreciation
-
-
-
Other
-
-
-
Total Operating Expenses
355,341.60
366,475.58
376,384.77
Profit before interest and taxes
34,354.40
23,220.42
13,311.23
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