Question

McAfee Industry has experienced substantial employee turnover among its office workers. During exit​ interviews, more than 80% 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, McAfee Industry’s 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 $18 per hour and benefits are $5 per hour. In​ comparison, McAfee Industry spends an average hourly rate of $20 for total compensation. Of this​ amount, 65% is allocated for wages. If McAfee Industry increased its average hourly rate to $23 for total compensation, recalculate the company’s wages and benefits if the company changes its pay mix to 70% for wages and 30% for benefits.

• How much would McAfee Industry spend on wages and on benefits, respectively, on an average hourly basis?
• If we assume that each worker provides 2,080 hours of service each​ year, how much will the company spend on wages and how much on benefits over the course of one year for 100 office workers?

Answer 1

	Calculation of Company's wages & benefits (per hour)
	(wages-70%,benefits-30%)
a)	Increased hourly rate		=	$23
b)	Portion of wages (a*70%)		=	$16.10
c)	Portion of benefits (a*30%)		=	$6.90
	Calculation of Company's wages & benefits (for 1 year)
	(2080 hours,100 office workers)
a)	Spend on wages ($16.1*2080*100)    =			$3,348,800
b)	Spend on benefits ($6.9*2080*100) =			$1,435,200

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