4. First Case Manufacturing Company has annual payroll of $100,000. Voluntary contribution are allowed in the State where this company does business. Total unemployment taxes paid into the State’s unemployment fund amounts to $24,000. Cumulative unemployment benefits paid amounted to $16, 005. Calculate the reserve ratio. Expected taxable wages for the next year will be $150,000. With an 8% reserve ratio, the Company can lower there unemployment taxes by 1%. How much of a voluntary contribution is required? Should the Company make the voluntary contribution? Explain

Question

4. First Case Manufacturing Company has annual payroll of $100,000. Voluntary contribution are allowed in the State where this company does business. Total unemployment taxes paid into the State’s unemployment fund amounts to $24,000. Cumulative unemployment benefits paid amounted to $16, 005. Calculate the reserve ratio. Expected taxable wages for the next year will be $150,000. With an 8% reserve ratio, the Company can lower there unemployment taxes by 1%. How much of a voluntary contribution is required? Should the Company make the voluntary contribution? Explain

Answer 1

To calculate the reserve ratio, we first need to understand the formula for calculating the reserve ratio:

Reserve ratio = Total unemployment taxes paid / Cumulative unemployment benefits paid

In this case, the total unemployment taxes paid are $24,000, and the cumulative unemployment benefits paid are $16,005. Thus, the reserve ratio can be calculated as:

Reserve ratio = $24,000 / $16,005

To calculate the voluntary contribution required, we need to determine the expected taxable wages for the next year and apply the lower tax rate. The formula for calculating the voluntary contribution is:

Voluntary contribution = (Expected taxable wages * (Current tax rate - Lowered tax rate)) / 100

In this case, the expected taxable wages for the next year are $150,000, the current tax rate is 8%, and the lowered tax rate is 7% (8% - 1%). Thus, the voluntary contribution can be calculated as:

Voluntary contribution = ($150,000 * (8% - 7%)) / 100

Now, we need to determine whether the company should make the voluntary contribution or not. To do that, we need to compare the voluntary contribution with the potential tax savings. The formula for calculating the potential tax savings is:

Potential tax savings = Expected taxable wages * (Current tax rate - Lowered tax rate)

If the voluntary contribution is less than the potential tax savings, then it is beneficial for the company to make the voluntary contribution.

Let's calculate the voluntary contribution and the potential tax savings to determine if the company should make the voluntary contribution or not.