30 Dec Summerville Processing Company provides word-proce
Summerville Processing Company provides word-processing services for business clients and students in a university community. The work for business clients is fairly steady throughout the year. The work for students peaks significantly in December and May as a result of term papers, research project reports, and dissertations. Two years ago, the company attempted to meet the peak demand by hiring part-time help. However, this led to numerous errors and considerable customer dissatisfaction. A year ago, the company hired four experienced employees on a permanent basis instead of using part-time help. This proved to be much better in terms of productivity and customer satisfaction. But, it has caused an increase in annual payroll costs and a significant decline in annual net income. Recently, Valarie Flynn, a sales representative of Davidson Services Inc., has made a proposal to the company. Under her plan, Davidson Services will provide up to four experienced workers at a daily rate of $80 per person for an 8-hour workday. Davidson workers are not available on an hourly basis. Summerville Processing would have to pay only the daily rate for the workers used. The owner of Summerville Processing, Nancy Bell, asks you, as the company’s accountant, to prepare a report on the expenses that are pertinent to the decision. If the Davidson plan is adopted, Nancy will terminate the employment of two permanent employees and will keep two permanent employees. At the moment, each employee earns an annual income of $22,000. Summerville Processing pays 8% FICA taxes, 0.8% federal unemployment taxes, and 5.4% state unemployment taxes. The unemployment taxes apply to only the first $7,000 of gross earnings. In addition, Summerville Processing pays $40 per month for each employee for medical and dental insurance. Nancy indicates that if the Davidson Services plan is accepted, her needs for workers will be as follows. Working Months Number Days per Month January-March 2 20 April-May 3 25 June-October 2 18 November-December 3 23InstructionsWith the class divided into groups, answer the following.(a) Prepare a report showing the comparative payroll expense of continuing to employ permanent workers compared to adopting the Davidson Services Inc. plan.(b) What other factors should Nancy consider before finalizing her decision?