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Thursday, June 16, 2016

Hamburger Minimum Wage

Hamburger Minimum Wage

This is Tom and his wife Carol.  Tom and Carol own the local hamburger restaurant.

To make things easy, Tom and Carol only sell hamburgers, one size of fries, and one size of soft drink.  You get your choice of cola or diet cola, nothing else.

The restaurant is open from 10 AM until 10 PM every day of the week except Sunday.  That is 12 hours per day.  Each year the restaurant is closed from July 01 to July 15 so that everyone may have a vacation.

The restaurant is also closed Thanksgiving and Christmas Day.

This means that the restaurant is open approximately 300 days per year.

300 days times 12 hours = 3,600 hours per year.  Tom and Carol work all of those hours.  So together Tom and Carol work 7,200 hours per year.

The name of the burger place is Tom and Carol’s Burger Dude, a very creative name.

Tom and Carol have two employees, Billy-Bob and Charlene.  Both of them work 40 hours per week for the 50 weeks a year that Tom and Carol’s Burger Place is open.

2 Employees X 40 Hours per week is 80 hours per week.

50 weeks per year times 80 hours per week is 4,000 hours per year.

Billy Bob and Charlene make minimum wage.

Minimum wage is $7.25 per hour. 

$7.25 per hour times 4,000 hours per year is $29,000 per year.

Tom and Carol must pay payroll taxes as well as the cost of uniforms, etc. for Billy Bob and Charlene.  To make matters simple, we will ignore those things.

To keep things simple, we are going to say that the restaurant is 3,000 square feet and that the rent is $1 per square foot per month.  This is a very cheap rent at $3,000 per month.

$3,000 per month times 12 months is $36,000 per year rent.

We are going to give Tom and Carol a break on utilities.  Electricity, Water, Sewage, Gas, Phone, and Garbage Pick Up are only going to cost them $5,000 per month total.

$5,000 per month for utilities times 12 months is $60,000 per year.
Tom and Carol must pay insurance on the restaurant to cover accident and theft, as well as to pay claims for people too stupid to know that coffee is hot and wet floors are slippery.  The insurance company is very cheap.  They only charge Tom and Carol $12,000 per year.

$12,000 per year insurance.

Things break in a restaurant.  Ovens break, coolers go bad, and other things just go wrong.  When a  Tom and Carol are lucky.  They only have to spend $1,000 per month for repairs and replacements.  This includes spoilage, loss, theft, and wastage.
cooler unit breaks, food spoils.

$1,000 per month spoilage, maintenance, loss, and wastage for 12 month is $12,000 per year.

Each year Tom and Carol have to pay legal fees to make sure everything stays legal.  They also have to pay an accountant.  Then, there are registration fees with the state, county, and city.  The estimate is $50,000 per year.

$50,000 per year for legal, accounting, and registration

There are always things that come up.  Just to keep these miscellaneous expenses simple, we will say that they come to $1,000 per year.

Tom and Carol have not paid themselves yet.  They have not supported any charities yet.  Every small business is confronted almost every day with a worthwhile charity.  The baseball team needs to be sponsored.  The Boy Scouts need money.  The local schools all need to have sponsors for their yearbook.  

We will assume that Tom and Carol donate $25,000 per year to local charities.  This now brings the total outlay to $225,000 per year and Tom and Carol still have not made a single penny.

  Things Add Up

Maintenance and Loss 12,000
Legal fees, Accounting, State Fees, Licenses etc. 50,000
Donations/Charity 25,000
Miscellaneous Expenses 1,000
Total yearly expenses 225,000

The Burger Dude only sells burgers by the meal.  This makes the calculations a little simpler.  Tom and Carol sell the burger meals for $6.00 each.

Cost to Make Burger Meal


Hamburger Patties
Hamburger Buns
Fixin's (lettuce, tomato, onion, pickle, etc.
Conidments (Duke's Mayonnaise, ketchup, etc.
Soft Drink
Oil, salt, and other ingredients
Paper products (cup, lid, bag, wrapper, fry bag, etc.)
Total Cost to make burger meal

If the Burger Dude sells its burger meals for $6.00 each and it costs them $3.00 each to make the burger, then the gross profit per burger meal is $3.00.  Each meal contributes $3.00 towards the overhead of $225,000 per year.

So far, the Burger Dude has to sell 75,000 hamburger meals per year to break even.  Tom and Carol have not paid themselves a cent at this time.

Since Tom and Carol both work all the hours the Burger Dude is open, they work 7,200 hours per year.  If they were to pay themselves minimum wage that would be $52,200 per year.  This means they have to sell 17,400 more burgers per year just to make minimum wage.

For Tom and Carol to make minimum wage, Burger Dude has to sell 92,400 burger meals per year.

One day the president signs into law a new minimum wage.  Now, the minimum wage is $8.00 per hour.  This means Billy Bob and Charlene now cost Burger Dude $32,000 per year instead of $29,000.  This is $3,000 more dollars per year.  That means Tom and Carol have to sell 1,000 more burger meals per year just to make up for the added cost of Billy-Bob and Charlene.

There is more.  Because minimum wage has gone up, workers who make more than minimum wage expect to get a salary increase.  This means that at each step along the way the prices increase.

The farmers’ expenses have gone up because they have to pay more for labor.  The farmers have to pay more for supplies because each step along the way has had to pay more for labor.

The meat packers need more money because their cost of labor has gone up in addition to the increase in the price of meat because the farmers had to pay more.

The meat packers pass their increased prices along to the wholesaler.  The wholesaler has to pay more for their labor because their workers want an increase.

The original minimum wage was $7.25.  It went up to $8 which is an increase of 75¢.  .75/7.25 is about a 10% increase.  This means that every step along the way has to increase by at least 10% just to cover the increased labor costs.

The increase is actually exponential, but just to keep it simple we will say that the wholesale costs have increased by 10%.  We will say that it now costs Burger Dude $3.30 to create a burger meal.

Tom and Carol are faced with a dilemma.  Should Burger Dude eat the cost increase and continue to sell their burger meals for $6 each?  Should Burger Dude increase their prices?

If Burger Dude keeps their price steady, they will only make $2.70 per burger.

Since Billy Bob and Charlene have gotten a raise due to the minimum wage increase, the $3,000 extra means that it now takes $228,000 per year to run the Burger Dude.

Before it took 75,000 burger meals to cover the basic costs of running the Burger Dude, but now it takes 84,445 to break even.

Since Tom and Carol work 7,200 hours per year if they pay themselves minimum wage, they would make $57,600 per year.

$228,000 overhead plus $57,600 salary means that in order to pay themselves minimum wage they now have to sell 105,777 hamburger meals per year.

In order to stay where they were to start with, Burger Dude now has to sell 13,377 more burgers per year.

Of course, Burger Dude could just increase their prices by 10%.  This would mean that a burger meal now costs $6.60.

Not everyone gets a raise just because the minimum wage goes up.  Now fewer people can afford to buy a burger meal.

Most people who make minimum wage are at the bottom of the food chain. 

When the minimum wage goes up, usually businesses will let a good many of their minimum wage people go.

Companies will fire the least productive people when a minimum wage increase goes into effect and will not hire for a while.

In the meantime, the very people who the minimum wage was meant to help are hurt by the increase.  Those making minimum wage saw their 10% increase taken away by at least a 10% rise in prices.

As anyone can see, a minimum wage increase is only hurtful to the economy.  Adam Smith’s Unseen Hand will take care of wage increases for the American workers.  In short, the market will set the wages.

Cite This Page
© 2008-2016 McClendon Enterprises
Website name: Redneck MBA
Article Name:  Hamburger Minimum Wage
Author: David E. McClendon Sr.
Editor: Suzanne G. McClendon

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The opinions or advice listed in this blog or website should be used as a place to start only. It is not a substitute for the use of a professional.
Please be sure to consult your attorney and/or accountant with any specific questions.
There is no one right answer to any business question that will cover all circumstances.

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