Chapter 9, Problem 2ATC

a.1

To determine

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

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 $\left(\$98,000\times 15\%\right)$	14,700
FICA Tax − SS $\left(\$98,000\times 6\%\right)$	5,880
FICA Tax − Medicare $\left(\$98,000\times 1.5\%\right)$	1,470
Total Deductions			(22,050)
Net Pay			$75,950
Employee No. 2
Gross Earnings		43,000
Deductions:
Federal Income Tax $\left(\$43,000\times 15\%\right)$	6,450
FICA Tax − SS $\left(\$43,000\times 6\%\right)$	2,580
FICA Tax − Medicare $\left(\$43,000\times 1.5\%\right)$	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 $(\$104,000\times 15\%)$	$15,600.00
FICA Tax − SS $\left(\$104,000\times 6\%\right)$	6,240.00
FICA Tax − Medicare $\left(\$104,000\times 1.5\%\right)$	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 $\left(\$37,620\times 15\%\right)$	$5,643.00
FICA Tax − SS $\left(\$37,620\times 6\%\right)$	2,257.20
FICA Tax − Medicare $\left(\$37,620\times 1.5\%\right)$	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 $126,000 and for Employee 2 is $17,200 in Company V.

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 $\left(\$126,000\times 15\%\right)$	$18,900
FICA Tax − SS $\left(\$110,000\times 6\%\right)$	6,600
FICA Tax − Medicare $\left(\$126,000\times 1.5\%\right)$	1,890
Total Deductions			(27,390)
Net Pay			$98,610.00
Employee No. 2
Gross Earnings		$17,200
Deductions:
Federal Income Tax $\left(\$17,200\times 15\%\right)$	$2,580
FICA Tax − SS $\left(\$17,200\times 6\%\right)$	1,032
FICA Tax − Medicare $\left(\$17,200\times 1.5\%\right)$	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

To determine

Determine the total compensation cost for Company B, Company H, and Company V.

Explanation of Solution

Compute the compensation costs for Company B.

Particulars	Amount ($)	Amount ($)
Salary Costs:	$\left(\$98,000+\$43,000\right)$	$141,000
FICA Social Security tax expense	$\begin{array}{l}\left(\$98,000+\$43,000\right)\times 6\%\hfill \end{array}$	8,460
FICA Medicare tax expense	$\left(\$141,000\times 1.5\%\right)$	2,115
Federal Unemployment tax expense	$\left(\$14,000\times .6\%\right)$	84
State Unemployment tax expense	$\begin{array}{l}\left(\$14,000\times 5.4\%\right)\hfill \end{array}$	756
Employee Medical insurance Expense	$\left(\$500\times 12\right)$	6,000
Employee Pension Expense	$\left(\begin{array}{l}\$100\times 12\hfill \end{array}\right)$	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:	$\begin{array}{l}\left(\$104,000+\$37,620\right)\hfill \end{array}$	$141,620.00
FICA Social Security tax expense	$\left(\$141,620\times 6\%\right)$	8,497.20
FICA Medicare tax expense	$\left(\$141,620\times 1.5\%\right)$	2,124.30
Federal Unemployment tax expense	$\left(\$14,000\times .6\%\right)$	84.00
State Unemployment tax expense	$\left(\$14,000\times 5.4\%\right)$	756.00
Employee Medical insurance Expense	$\begin{array}{l}\left(\$650\times 12\right)\hfill \end{array}$	7,800.00
Employee Pension Expense	$\left(\$250\times 12\right)$	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:	$\left(\$126,000+\$17,200\right)$	$143,200
FICA Social Security tax expense	$\begin{array}{l}\left(\$110,000+\$17,200\right)\times 6\%\hfill \end{array}$	7,632
FICA Medicare tax expense	$\left(\$143,200\times 1.5\%\right)$	2,148
Federal Unemployment tax expense	$\left(\$14,000\times .6\%\right)$	84
State Unemployment tax expense	$\left(\$14,000\times 5.4\%\right)$	756
Employee Medical insurance Expense	$\left(\$375\times 12\right)$	4,500
Employee Pension Expense	$\left(\$126,000\times 10\%\right)$	12,600
Total Payroll Cost		$170,920.00

Table (8)

Thus, the total compensation cost for Company V is $170,920.00.

a. 3

To determine

Write the compensation by separating into salaries cost, payroll tax, and fringe benefits.

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.

To determine

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.

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.