The Mound Gazette is a local newspaper that is published Monday through Friday.
ID: 2785977 • Letter: T
Question
The Mound Gazette is a local newspaper that is published Monday through Friday. It sells 90,000 copies daily. The paper is currently in a profit squeeze, and the publisher, Harley Hews, is looking for ways to reduce expenses.
A review of current distribution procedures reveals that the Mound Gazette employs 100 truck drivers to drop off bundles of newspapers to 1,300 teenagers who deliver papers to individual homes. The drivers are paid an hourly wage while the teenagers receive 4 cents for each paper they deliver.
Hews is considering an alternative method of distributing the papers, which he says has worked in other cities the size of Flower Mound (where the Mound Gazette is published). Under the new system, the newspaper would retain 20 truck drivers to transport papers to five distribution centers around the city. The distribution centers are operated by independent contractors who would be responsible for making their own arrangements to deliver papers to subscribers’ homes. The 20 drivers retained by the Mound Gazettewould receive the same hourly rate as they currently earn, and the independent contractors would receive 20 cents for each paper delivered.
The state unemployment tax is 5 percent, and the federal unemployment tax is 0.6 percent of the first $7,000 of earnings.
The paper pays $300 per month for health insurance for each driver and contributes $250 per month to each driver’s pension plan.
The paper has liability insurance coverage for all teenage carriers that costs $100,000 per year.
Prepare a schedule showing the costs of distributing the newspapers under the current system and the proposed new system.
The Mound Gazette is a local newspaper that is published Monday through Friday. It sells 90,000 copies daily. The paper is currently in a profit squeeze, and the publisher, Harley Hews, is looking for ways to reduce expenses.
A review of current distribution procedures reveals that the Mound Gazette employs 100 truck drivers to drop off bundles of newspapers to 1,300 teenagers who deliver papers to individual homes. The drivers are paid an hourly wage while the teenagers receive 4 cents for each paper they deliver.
Hews is considering an alternative method of distributing the papers, which he says has worked in other cities the size of Flower Mound (where the Mound Gazette is published). Under the new system, the newspaper would retain 20 truck drivers to transport papers to five distribution centers around the city. The distribution centers are operated by independent contractors who would be responsible for making their own arrangements to deliver papers to subscribers’ homes. The 20 drivers retained by the Mound Gazettewould receive the same hourly rate as they currently earn, and the independent contractors would receive 20 cents for each paper delivered.
Explanation / Answer
Schedule showing the costs of distributing the news papers under the current and proposed system are as follows:
Calculations are as below:
Particulars Current system Proposed system Salary earned by the driver 4200000 840000 FICA Taxes @(6.2%+1.45%) 321300 64260 Unemployment tax rate 5.6% of 7000 39200 7840 Worker's compensation insurance 29400 5880 Health insurance 30000 6000 Pension plan 25000 5000 Liability insurance coverage for teenagers 100000 0 Teenagers pay 3600 0 Total costs 4748500 928980