In: Operations Management
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.
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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