Question

C1. Budgeting for Additional Payroll Costs

Frank Flynn is the payroll manager for Powlus Supply Company. During the budgeting process, Sam Kinder, director of finance, asked Flynn to arrive at a set percentage that could be applied to each budgeted salary figure to cover the additional cost that will be incurred by Powlus Supply for each employee. After some discussion, it was determined that the best way to compute this percentage would be to base these additional costs of payroll on the average salary paid by the company.

Kinder wants this additional payroll cost percentage to cover payroll taxes (FICA, FUTA, and SUTA) and other payroll costs covered by the company (workers’ compensation expense, health insurance costs, and vacation pay).

Flynn gathers the following information in order to complete the analysis:

Average annual salary	$24,000
FICA rates	6.2% and 1.45%
FUTA	0.6% on 1st $7,000
SUTA	3.3% on 1st $10,400
Workers’ compensation costs	$0.97 per $100 of payroll
Health insurance costs	$75.15 per week
Vacation pay earned	2 weeks’ pay earned each year to be used in the following year

Compute the percentage that can be used in the budget.

Also, think of the scenarios that may impact the cause of payroll to fluctuate, and by how much? (hint: try using the skill learned in your managerial accounting class.

Answer 1

	in $
FICA Tax expense -Social security (24000*6.2%)	1488
FICA Tax expense -Medicare (24000*1.45%)	348
FUTA tax expense 7000*.6%	42
SUTA tax expense (10400*3.3%)	343.2
Workers compensation rate 24000/$100*.97	232.8
Health insurance cost per week 52 weeks*75.15	3907.8
Vacation pay period 24000/52 weeks*2	923.08
Total additional cost	7284.88
% to be used in budget 7284.88/24000*100	30.35	%
Payroll can be fluctuated if the employee are offered towork extra and they will be getting
extra salary for the same. 2) If there are some strike in the company employee may get less pay
so that can also effect the change in payroll. 3) If there is changes in FICA tax rate, SUTA and FUTA
that can also effect additional cost of payroll.
If any doubt please comment