A survey of employers found that during 1993 employment...

Hi AAPL,

We're told that during 1993 employment costs rose 3.5 percent, where employment costs consist of salary costs and fringe-benefit costs - and that salary costs rose 3 percent and fringe-benefit costs rose 5.5 percent during 1993. We're asked for the percent of employment costs that were represented by fringe-benefit costs at the beginning of 1993. This question is essentially a 'Weighted Average' question. It can be solved Algebraically or by TESTing THE ANSWERS.

Since salary costs rose 3% and fringe-benefit costs rose 5.5%, but the OVERALL employment costs rose just 3.5%, we know that salary costs are a much BIGGER percent of the total costs (if salary costs and fringe-benefit costs were equal, then the overall increase would have been (3+5.5)/2 = 4.25%). Thus, fringe-benefit costs must be a relatively small part of the total. Let's TEST Answer B first....

Answer B: 20%
IF... fringe-benefit costs = 20% of total employment costs, then
salary costs = 100% - 20% = 80% of total employment costs
20:80 = 1:4
[(1)(5.5%) + 4(3%)]/5 = 17.5%/5 = 3.5%
This is an exact match for what we were told, so this must be the answer.

Final Answer: B

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