
a.1
Determine the gross and net payroll of Employee 1 and Employee 2for Company B, Company H, and Company V for the year.
a.1

Explanation of Solution
Gross pay: The total amount earned by an employee in the form of salary, or wages, or commission, and bonus, before any taxes or deductions, is referred to as gross pay.
Net pay: Net pay is the amount of gross pay after deduction of taxes, and any other deductions.
Compute the gross earnings for Company B.
Company B Computation of Gross Earnings | ||||||
Employee |
Hours Worked |
x |
Wage Rate per Hour |
= |
Gross Pay ($) | |
No. 1 | Regular | 2,000 | 40 | 80,000.00 | ||
Over time | 300 | 60 | 18,000.00 | |||
Total | 2,300 | 98,000.00 | ||||
No. 2 | Regular | 2,000 | 20 | 40,000.00 | ||
Overtime | 100 | 30 | 3,000.00 | |||
Total | 2,100 | 43,000.00 |
Table (1)
Thus the gross earnings for Employee 1 is $98,000 and for Employee 2 is 43,000 in Company B.
Compute the net pay for Employee 1 and Employee 2 for Company B.
Employee No. 1 | |||
Particulars | Amount ($) | Amount ($) | |
Gross Earnings | $98,000 | ||
Deductions: | |||
Federal Income Tax | 14,700 | ||
FICA Tax − SS | 5,880 | ||
FICA Tax − Medicare | 1,470 | ||
Total Deductions | (22,050) | ||
Net Pay | $75,950 | ||
Employee No. 2 | |||
Gross Earnings | 43,000 | ||
Deductions: | |||
Federal Income Tax | 6,450 | ||
FICA Tax − SS | 2,580 | ||
FICA Tax − Medicare | 645 | ||
Total Deductions | (9,675) | ||
Net Pay | $33,325 |
Table (2)
Thus, the net pay for Employee 1 is $75,950 and for Employee 2 is $33,325 in Company B.
Compute the gross earnings for Company H.
Company H Computation of Gross Earnings | |||||
Employee | Hours/Weeks Worked |
x | Wage Rate per Hour/ Week |
= |
Gross Pay ($) |
No. 1 | 52 | $2,000 | $104,000.00 | ||
Total | $104,000.00 | ||||
No. 2 | Regular2,000 | $18 | $36,000.00 | ||
Over time 60 | 27 | 1,620.00 | |||
Total | 2,060 | $37,620.00 |
Table (3)
Thus the gross earnings for Employee 1 is $104,000.00 and for Employee 2 is 37,620.00 in Company H.
Compute the net pay for Employee 1 and Employee 2 for Company H.
Employee No. 1 | ||
Particulars | Amount ($) | Amount ($) |
Gross Earnings | $104,000.00 | |
Deductions: | ||
Federal Income Tax | $15,600.00 | |
FICA Tax − SS | 6,240.00 | |
FICA Tax − Medicare | 1,560.00 | |
Total Deductions | (23,400.00) | |
Net Pay | $80,600.00 | |
Employee No. 2 | ||
Gross Earnings | $37,620.00 | |
Deductions: | ||
Federal Income Tax | $5,643.00 | |
FICA Tax − SS | 2,257.20 | |
FICA Tax − Medicare | 564.30 | |
Total Deductions | (8,464.50) | |
Net Pay | $29,155.50 |
Table (4)
Thus, the net pay for Employee 1 is $80,600.00 and for Employee 2 is $29,155.50 in Company H.
Compute the gross earnings for Company V.
Valley Company Computation of Gross Earnings | |||||
Employee | Hours/Months Worked |
x | Wage Rate per Hour/Month |
= |
Gross Pay |
No. 1 | Regular12 | $10,500.00 | $126,000.00 | ||
Total | $126,000.00 | ||||
No. 2 | Regular860 | 20 | $17,200.00 | ||
Total | $17,200.00 |
Table (5)
Thus the gross earnings for Employee 1 is $104,000.00 and for Employee 2 is 37,620.00 in Company H.
Compute the net pay for Employee 1 and Employee 2 for Company V.
Employee No. 1 | |||
Particulars | Amount ($) | Amount ($) | |
Gross Earnings | $126,000 | ||
Deductions: | |||
Federal Income Tax | $18,900 | ||
FICA Tax − SS | 6,600 | ||
FICA Tax − Medicare | 1,890 | ||
Total Deductions | (27,390) | ||
Net Pay | $98,610.00 | ||
Employee No. 2 | |||
Gross Earnings | $17,200 | ||
Deductions: | |||
Federal Income Tax | $2,580 | ||
FICA Tax − SS ![]() | 1,032 | ||
FICA Tax − Medicare | 258 | ||
Total Deductions | (3,870) | ||
Net Pay | $13,330.00 |
Table (6)
Thus, the net pay for Employee 1 is $98,610 and for Employee 2 is $13,330 in Company V.
a.2
Determine the total compensation cost for Company B, Company H, and Company V.
a.2

Explanation of Solution
Compute the compensation costs for Company B.
Particulars | Amount ($) | Amount ($) |
Salary Costs: | $141,000 | |
FICA Social Security tax expense | 8,460 | |
FICA Medicare tax expense | 2,115 | |
Federal | ![]() | 84 |
State Unemployment tax expense | 756 | |
Employee Medical insurance Expense | 6,000 | |
Employee Pension Expense | 1,200 | |
Total Payroll Cost | $159,615.00 |
Table (7)
Thus, the total compensation cost for Company B is $159,615.
Compute the compensation costs for Company H.
Particulars | Amount ($) | Amount ($) |
Salary Costs: | $141,620.00 | |
FICA Social Security tax expense | 8,497.20 | |
FICA Medicare tax expense | 2,124.30 | |
Federal Unemployment tax expense | 84.00 | |
State Unemployment tax expense | ![]() | 756.00 |
Employee Medical insurance Expense | 7,800.00 | |
Employee Pension Expense | 3,000.00 | |
Total Payroll Cost | $163,881.50 |
Table (7)
Thus, the total compensation cost for Company H is $163,881.50.
Compute the compensation costs for Company V.
Particulars | Amount ($) | Amount ($) |
Salary Costs: | $143,200 | |
FICA Social Security tax expense | 7,632 | |
FICA Medicare tax expense | 2,148 | |
Federal Unemployment tax expense | 84 | |
State Unemployment tax expense | 756 | |
Employee Medical insurance Expense | 4,500 | |
Employee Pension Expense | 12,600 | |
Total Payroll Cost | $170,920.00 |
Table (8)
Thus, the total compensation cost for Company V is $170,920.00.
a. 3
Write the compensation by separating into salaries cost, payroll tax, and
a. 3

Explanation of Solution
Salaries cost, payroll tax and fringe benefits for Company B, Company H, and Company V.
Company |
Total Salary Costs |
Total Compensation Costs |
Total fringe benefits |
Company B | $141,000 | $159,615.00 | $7,200 |
Company H | $141,620 | $163,881.50 | $10,800 |
Company V | $143,200 | $170,920.00 | $17,100 |
Table (8)
b.
Explain the manner in which the categories of compensation cost are similar and state the reason for having more or less cost than other companies.
b.

Explanation of Solution
Compensation cost and Percentage salary of compensation:
Company |
Total Compensation Costs | % Salary of Compensation |
Company B | $159,615.00 | 88.34% |
Company H | $163,881.50 | 86.42% |
Company V | $170,920.00 | 83.78% |
Table (9)
Note: Total Compensation costs include salary expenses, payroll tax expense, fringe benefits.
- Company V is having the higher amount of compensation cost but the percent of salary compensation is lesser. As the company is not paying the 6% of FICA Social security tax on some salaries.
- Company B and Company H is having the lower amount of compensation cost but the percent of salary compensation is higher. As the companies are paying their taxes on the salaries.
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Chapter 9 Solutions
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