Question

In: Operations Management

Compute the average hourly cost to a contractor of a boilermaker involved on a project. The...

Compute the average hourly cost to a contractor of a boilermaker involved on a project. The boilermaker works on the second shift of a three-shift job and works six 10-hour days per week. Under the shift pay agreement, the boilermaker works 7 hours and is paid for 8 hours. Additional PL and PD insurance for $50,000/$100,000 coverage is required. Use 6.2% for FICA and 5.0% for unemployment insurance.

Solutions

Expert Solution

The boilermaker works 10 hours shifts every day and for 6 days so total hour of work= 10*6 = 60 hours a week

Insurance premiums and fringe benefits are to be provided to the hours which are straight time so it is important to differentiate the straight time from the premium time

Calculation of straight time and premium time

The worker works Monday to Friday 10 hours out of which 7 hours are regular and 3 hours premium time

Hours Worked

Monday to Friday 5*7 =35

5*3 =15

Saturday 1*7 = 7

1*3=3

Total = 60

The 7 hours work gives the worker 8 hours pay so Monday to Friday straight hours = 5*8 = 40

After 3 hours he gets the overtime pay as the double hour pay so 1 part goes to straight hours and another part goes to premium hours

Similarly for Saturday as this is a weekly off one part of Saturday goes to straight hour and another part goes to a premium hour pay

The detailed calculation is shown below in the table

Hours Worked Straight time hours(ST) Premium hours
Mon-Fri 5*7 = 35 5*8= 40
5*3=15 5*3=15 5*3=15
Sat 1*7=7 1*8= 8 1*8=8
1*3=3 1*3= 3 1*3=3
Total 60 66 26

Please refer to the standard rate given by the table below

For boiler workers, the base rate is = $20.50

Straight time pay = 20.50*66 = $1353

Premium time pay = 20.50*26 = $533

Gross pay = $1353+$533 =$1886

Fringes for boiler workers(for straight time hours)

Pension= $1.50*66 = 99 (see the attached figure for data)

Health and welfare = $2.10*66 = $138.6

Vacation = $1.30*66= $85.8

Apparentice training = $0.04*66 = $2.64

Total = 99+138.6+85.8+2.64=$326.04

Workmen compensation = $12.92

Public liability for $50000/$100000 covergae = 1.59 * basic rate = 1.59*0.74 = $1.1766 (refer to the table for formula and basic rate)

Property Damage(PD) = 1.30 * basic rate = 1.30 * 0.72=$0.936

Total = $15.0326 per $100 payroll (as stated in the table per $100 of pay)

So WC +PL+PD = 15.0326* 1353/100 = $203.39

FICA = 6.2%

The vacation portion of the fringe is considered to be a deferred income item and, therefore, is subject to FICA

FICA = 0.062*(1886+85.8) = $122.2516

Unemployement also calculated in same manner = 0.05*(1886+85.8) =$98.59

Total cost to contractor = Gross Pay + Fringes + WC,PL,PD +FICA+Unemployment = 1886+326.04+203.39+122.2516+98.59 =$2636.2716

Hourly rate = 2636.2716/60=$43.94 approx $44

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