• April 21st, 2016

Business Studies

Paper, Order, or Assignment Requirements

On April 4, 2016, California Gov. Jerry Brown signed a law raising the state’s minimum wage to $22 per hour by the year 2022. Under the new law, the minimum wage will rise by 50 cents per year in 2017 (to $10.50/hour) and 2018 (to $11.00/hour); it will rise by $1.00 per year for each of the remaining four years (i.e, in 2019: $12/hour; in 2020: $13/hour; in 2021: $14/hour; in 2022: $15/hour).

As the vice president for operations at Jo’s Cafés, a small chain of coffee shops in southern California, you have been asked by your boss, the owner and CEO, to help determine how this new wage law will affect finances at Jo’s. You should calculate the potential costs to your business and recommend some possible changes Jo’s might make in response to the changes you anticipate. You should project expected changes in finances out at least five years (that is, through 2021), and you should describe your findings in an informal report addressed to your boss.

Facts about your business:

Your chain includes eight different stores.
Details vary across the locations, but you average 12 baristas per store, as well as 2 barista trainers, and 4 members of the management team.
The baristas earn, on average, $11.25 per hour. In the past year, you have hired new baristas at a wage of $10.25 and given them a raise of 25 cents per hour after they have been with you for six months.
Barista trainers average a wage of $12.50 per hour. (To be promoted into this position, employees must have served as baristas for at least two years prior to applying.)
The management team consists of a store manager and an assistant store manager, as well as two other baristas with substantial experience. The first two of these are salaried employees; the other members of the management team are currently paid an average of $14.25 per hour.
Assistant store manager begin with a salary of $35,000 per year, and store managers begin at $42,000 per year.
Over the past five years, you have been able to offer all hourly employees an annual raise of 25 cents per hour
Weekly store revenues also vary by location, with your lowest volume store averaging $16,000 in sales per week and your store with the most traffic bringing in an average of $50,000 per week.
All stores are open from 5:00am until 10:00pm Mondays through Fridays and 6:00am to 9:00pm Saturdays and Sundays.
All members of the management team and all barista trainers work 40 hours per week; 30% of the baristas work 40 hours per week; another 40% work 20 hours per week, and the remaining 30% work an average of 12 hours per week.
[Update 4/18] Anyone at or over 20 hours per week (including, of course, salaried employees) receives health insurance. (We will ignore the cost of employer retirement contributions–for the sake of this exercise, such contributions do not exist.) The cost to Jo’s is $475 per month per employee. (There would, of course, be different costs for ensuring Employee + Spouse, Employee + Children, or the employee’s entire Family–but again, for the sake of simplicity, let’s say that all of the employees at or over 20 hours/week take only the Employee coverage and that no one denies the coverage.) Let me go ahead and put that figure on a weekly basis (since that’s what we’re using for revenues and for labor costs): the cost to Jo’s is $5700 annually or $109.62 weekly per (qualified) employee.
Jo’s Cafés is the most successful locally owned coffee shop in your market. The executive team (you, the owner, and the vice president for finance) prides itself on the fair wages it pays employees–and you like to think that the minimal turnover you have experienced over the past five years is a result of employee’s satisfaction caused in no small part by the compensation you offer. You also have enjoyed unexpected profits in the past five years, and those profits have been used to reward the executive team both with year-end bonuses and with generous raises. On average, executive salaries have risen by 12% annually since 2010.

 

Your assignment is to consider all of this information and to predict for the owner how business will look over the next five years. (I do not mean merely that you should say what business is going to look like in 2021. In addition to that information, you will want to say what business is going to look like incrementally, that is, each year between now and 2021.) In this sense, your task is descriptive: you are to describe what changes the executive team should expect.

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