2 x 40 hours each week) = $52,000 x

2 – 9. Is it more cost effective to have current
manufacturing employees work on an overtime basis during the life of the
contract or to hire new employees?

Overtime
Pay Scenario

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Hiring
Additional Workers Scenario

1,000
employees will have to work an extra 4 hours per week for 4,000 extra hours
each week.

Base
pay for the additional workers at $20 hour x 2,080 hours a year (52 weeks x
40 hours each week)
=
$41,600 x 100 workers = $4,160,000 x 5 years = $20,800,000

There
are 52 weeks in a year and the contract spans 5 years, so there are a total
of 260 weeks. 52 weeks x 5 years = 260 weeks

Benefit
costs = $10,000 x 5 years x 100 workers = $5,000,000

260
weeks x 4,000 hours = 1,040,000 additional hours

One-time
costs per worker include $5,000 (recruitment) plus $3,000 (training), plus
$12,000 (termination)
=
$20,000 x 100 workers = $2,000,000

Per
the scenario, the hourly rate for these overtime hours is $30 per hour.

Total
cost of workers
=
$20,800,000 + $5,000,000 + $2,000,000 = $27,800,000

1,040,000
hours x $30 per hour = $31,200,000

 

 

It is more cost effective to hire new employees.

2 – 10. Let’s assume that the unemployment rate in
the area is low, which is making it difficult to attract new manufacturing
employees. ACME is finding that it is able to overcome this problem by paying
new employees at a higher hourly rate of $25 per hour. Under this scenario, is
it more cost effective to have current manufacturing employees work on an
overtime basis or to hire new employees?

 

 

Current
Manufacturing Employees Work On An Overtime Basis

Hire
New Employees

 

Hiring
additional employees at $25 per hour would result in a higher total base pay.

 

Base
pay for the additional workers at $25 hour x 2,080 hours a year (52 weeks x
40 hours each week) = $52,000 x 100 workers = $5,200,000 x 5 years =
$26,000,000

1,040,000
hours x $30 per hour = $31,200,000

The
total pay for these workers = $26,000,000 + $5,000,000 + $2,000,000 =
$33,000,000

 

Under this scenario, it is more cost effective to have current manufacturing employees to work overtime
instead of paying $25 per hour to new employees.

 

2 – 11. Would it be more cost effective to hire 50
new employees as well as having half of current manufacturing employees work
overtime?

Overtime

Hiring
Additional Workers

Half
of $31,200,000 or $31,200,000/2 = $15,600,000

Half
of $27,800,000 or $27,800,000/2 = $13,900,000

The
Total of these two amounts $15,600,000 + $13,900,000 = $29,500,000

 

This option would be more cost effective than paying
overtime to all 1,000 workers. However, it would cost more than hiring 100
workers. The most cost efficient option is hiring 100 workers.