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Answer :
Final answer:
Turkey needs payroll information for both the current system and the proposed system to make a decision. The costs of all associated components, such as wages, benefits, and taxes should be considered. In deciding which method to choose, Turkey should consider both the monetary costs and nonmonetary factors such as reliability and potential impact on current employees and subscribers.
Explanation:
In order to make a decision about adopting the alternative distribution method, Turkey needs to consider the costs associated with both methods. For the current system, this would include the wages of the 100 truck drivers and the cost per paper that is paid to the teenagers. Furthermore, the costs associated with the benefits provided to the truck drivers such as health insurance, pension plan contributions, workers’ compensation insurance, income tax, social security tax, Medicare tax, and unemployment tax should also be taken into account. Under the proposed system, the wages of the 20 truck drivers and the cost per paper that would be paid to the independent contractors at the distribution centers need to be evaluated.
In analyzing the costs of distributing the newspapers under the two different systems, it would be necessary to factor in all the information provided. I would recommend Turkey to choose the system that results in lower costs and more efficient distribution. However, nonmonetary factors such as the reliability of the independent contractors, potential impact on the teenagers who currently deliver the papers, and potential impact on the subscribers’ satisfaction should also be considered.
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Question Completion:
The Valley Voice is a local newspaper that is published Monday through Friday. It sells 90,000 coples dally. The paper is currently in a profit squeeze, and the publisher, Tom Turkey, Is looking for ways to reduce expenses.
Answer:
Valley Voice
1. It needs to know the total costs incurred under the old system and the new system.
2. See schedules below showing the costs under the two distribution systems.
3. The old system wins under economic considerations, especially given the fact that the publisher is currently experiencing profit squeeze.
4. If the amount paid per paper to the independent contractors can be renegotiated downwards, this may change the decision. With the new arrangement, will more papers be sold each day? Labor practices and laws do not favor the use of teenagers as workers. Will the company face some penalties or sanctions as a result? What about the bad publicity that the paper will face as a backlash following the use of teenagers? There are other considerations.
Explanation:
a) Data and Calculations:
Number of copies daily = 90,000
Number of copies yearly = 32,850,000 (90,000 * 365 days)
Average annual salary of a driver = $42,000
Total annual salary of drivers = $4,200,000
Average employee income tax withholding = 15%
Social security tax = 6.2% of the first $122,700 of earners
Medicare tax = 1.45% all earnings
State Unemployment tax = 5%
Federal Unemployment tax = 0.6% of the first $7,000 of earnings
Workers' compensation insurance = 0.7% ($0.70 per $100 of wages)
Health insurance for each driver = $3,600 ($300 * 12)
Pension Plan = $3,000 ($250 * 12)
Liability insurance coverage for all teenage carriers = $100,000 per year
Total cost under the old system:
Total annual salary of drivers ($42,000 * 100) $4,200,000
Social security tax = 6.2% of the first $122,700 = 7,607
Medicare tax = 1.45% all earnings = 60,900
State Unemployment tax = 5% 105,000 (1/2)
Federal Unemployment tax = 0.6% of the first
$7,000 of earnings ($700,000 * 0.6%) 4,200
Workers' compensation insurance = 0.7%
($0.70 per $100 of wages) ($4,200,000 * 0.7%) 29,400
Health insurance for each driver = $3,600 * 100
($300 * 12) 360,000
Pension Plan = $3,000 ($250 * 12) $3,000 * 100 300,000
Liability insurance coverage
for all teenage carriers = $100,000 per year 100,000
Payment to teenage carriers ($0.04 * 32,850,000) 1,314,000
Total payroll cost $6,481,100
Total cost under the new arrangement:
Total annual salary of drivers ($42,000 * 20) $840,000
Social security tax = 6.2% of the first $122,700 = 7,607
Medicare tax = 1.45% all earnings = 12,180
State Unemployment tax = 5% 21,000 (1/2)
Federal Unemployment tax = 0.6% of the first
$7,000 of earnings ($700,000 * 0.6%) 4,200
Workers' compensation insurance = 0.7%
($0.70 per $100 of wages) ($840,000 * 0.7%) 5,880
Health insurance for each driver = $3,600 * 20
($300 * 12) 72,000
Pension Plan = $3,000 ($250 * 12) $3,000 * 20 60,000
Payment to contractors ($0.20 * 32,850,000) 6,570,000
Total payroll cost $7,592,867
