Question

In an effort to keep low-wage workers' salaries commensurate with the cost of living, a number of states have amended their constitutions to allow the minimum wage to be adjusted with inflation.

You are the accountant for a company that owns a chain of 12 fast-food restaurants in a state which adjusts the minimum wage for inflation. Each restaurant employs 45 workers, each averaging 20 hours per week at the current federal minimum wage of $7.25 per hour.

(a) How many hours at minimum wage are paid out each week by the company?

(b) At the current rate of $7.25 per hour, what is the amount (in dollars) of the weekly minimum wage portion of the restaurant's payroll?

(c) If the inflation rate this year is 3%, calculate the adjusted minimum wage rate (in dollars per hour) to be paid next year. (Round your answer to two decimal places.)

(d) How much in additional wages will the company have to pay out next year at the adjusted rate (in dollars)? (Round your answer to the nearest dollar)

Answer 1

Each week, the food chain pays out 10,800 hours at minimum wage, totaling $78,300. With inflation at 3%, the new minimum wage rate is $7.47/hour, increasing the weekly payroll by $2,376.

To calculate the minimum wage hours paid out each week by the company, we multiply the number of workers by the hours worked per week for each worker:
45 workers x 20 hours/worker x 12 restaurants = 10,800 hours.
For the weekly minimum wage payroll, we multiply the hours by the wage rate:
10,800 hours x $7.25/hour = $78,300.
To find the adjusted minimum wage rate after a 3% inflation, we calculate:

$7.25 x (1 + 0.03) = $7.47 (rounded to two decimal places).
Next year's additional wage payout can be found by:

1. Calculating the difference between new and old rates over the total hours: ($7.47 - $7.25) x 10,800 hours.
2. Finding the total additional wages: $2,376 (rounded to the nearest dollar).

Thus, the answer is: the company pays 10,800 hours at minimum wage each week, amounting to $78,300 in wages. With a 3% increase due to inflation, the adjusted rate is $7.47 per hour, resulting in an additional $2,376 in weekly wages.