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This year, MBB Consulting fired 5% of its employees and left

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This year, MBB Consulting fired 5% of its employees and left

by eitijan » Fri Apr 08, 2016 10:49 am
This year, MBB Consulting fired 5% of its employees and left remaining employee salaries
unchanged. Sally, a first-year post-MBA consultant, noticed that that the average (arithmetic
mean) of employee salaries at MBB was 10% more after the employee headcount reduction
than before. The total salary pool allocated to employees after headcount reduction is what
percent of that before the headcount reduction?

(A)98.5%

(B)100.0%

(C)102.8%

(D)104.5%

(E)105.0%



D

Experts, please comment.
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by DavidG@VeritasPrep » Fri Apr 08, 2016 11:25 am
eitijan wrote:This year, MBB Consulting fired 5% of its employees and left remaining employee salaries
unchanged. Sally, a first-year post-MBA consultant, noticed that that the average (arithmetic
mean) of employee salaries at MBB was 10% more after the employee headcount reduction
than before. The total salary pool allocated to employees after headcount reduction is what
percent of that before the headcount reduction?

(A)98.5%

(B)100.0%

(C)102.8%

(D)104.5%

(E)105.0%



D

Experts, please comment.
Pick simple numbers. Say initially, you've got 100 employees making an average of $100 each. Total salary expenditure = 100*100 = 10,000

Now 5% get fired, so we've got 95 employees. Average salary goes up by 10%, so new average salary is 110 each. New salary expenditure 95*110 = 10,450.

10,450/10,000 = 104.5%, or D
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by eitijan » Fri Apr 08, 2016 8:27 pm
But, here it is mentioned that salary remains unchanged.
So if earlier total salary expenditure would b= 95*100= 9500
So new salary expenditure would remain same.
Please elaborate.
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by MartyMurray » Fri Apr 08, 2016 10:34 pm
eitijan wrote:But, here it is mentioned that salary remains unchanged.
So if earlier total salary expenditure would b= 95*100= 9500
So new salary expenditure would remain same.
Please elaborate.
LOL. This question is messed up.

It says "MBB Consulting fired 5% of its employees and left remaining employee salaries
unchanged."

If there are fewer employees and nobody's salary changed, then the salary pool must have decreased.

However, the OA says that the salary pool increased.

This is not possible. The maximum possible percentage would be 100%, which percentage would result only if all of the fired employees had had salaries of 0.

Of the last four questions you have posted, one CR is sketchy, one CR has no right answer and one PS is outright impossible.

Whatever source(s) they are coming from clearly include(s) some low quality questions.
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by MartyMurray » Fri Apr 08, 2016 10:56 pm
Try this one, which incorporates my point about the salary pool and shows why the 110% from the above question is impossible.

Jackson Consulting reduced headcount by laying off 20% of its employees. If the earnings of each of the remaining employees were the same before and after the layoffs, what is the maximum percentage by which the average earnings of the employees at the company could have increased?

(A) 15
(B) 16
(C) 20
(D) 25
(E) 40

The correct answer is D.
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by DavidG@VeritasPrep » Sat Apr 09, 2016 7:30 am
eitijan wrote:But, here it is mentioned that salary remains unchanged.
So if earlier total salary expenditure would b= 95*100= 9500
So new salary expenditure would remain same.
Please elaborate.
Imagine that you and I are the only employees at a company. I make $90. You make $110. The average salary is $100. If I get fired, and your salary remains unchanged, the average salary is now $110. So the average changed because my lower salary was removed, not because anything happened to your salary.
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by MartyMurray » Sat Apr 09, 2016 7:44 am
DavidG@VeritasPrep wrote:
eitijan wrote:But, here it is mentioned that salary remains unchanged.
So if earlier total salary expenditure would b= 95*100= 9500
So new salary expenditure would remain same.
Please elaborate.
Imagine that you and I are the only employees at a company. I make $90. You make $110. The average salary is $100. If I get fired, and your salary remains unchanged, the average salary is now $110. So the average changed because my lower salary was removed, not because anything happened to your salary.
True enough, but even if all of the 5% of the employees who were fired made 0, if the salaries of the remaining employees remain the same, the average cannot go up to 110. The max new average is around 105.

If all of the fired employees had salaries of 0, using David's numbers you would get the following.

Same Salary Pool/Remaining Employees = 10,000/95 = approx 105

Further, if the salaries remain the same, the TOTAL salary pool cannot go up because the number of workers is reduced. It can only stay the same or decrease.

So this question is, as I said before, MESSED UP.
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by DavidG@VeritasPrep » Sat Apr 09, 2016 8:23 am
Marty Murray wrote:
DavidG@VeritasPrep wrote:
eitijan wrote:But, here it is mentioned that salary remains unchanged.
So if earlier total salary expenditure would b= 95*100= 9500
So new salary expenditure would remain same.
Please elaborate.
Imagine that you and I are the only employees at a company. I make $90. You make $110. The average salary is $100. If I get fired, and your salary remains unchanged, the average salary is now $110. So the average changed because my lower salary was removed, not because anything happened to your salary.
True enough, but even if all of the 5% of the employees who were fired made 0, if the salaries of the remaining employees remain the same, the average cannot go up to 110. The max new average is around 105.

If all of the fired employees had salaries of 0, using David's numbers you would get the following.

Same Salary Pool/Remaining Employees = 10,000/95 = approx 105

Further, if the salaries remain the same, the TOTAL salary pool cannot go up because the number of workers is reduced. It can only stay the same or decrease.

So this question is, as I said before, MESSED UP.
All true. You win this round, Murray :)
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by MartyMurray » Sat Apr 09, 2016 8:50 am
DavidG@VeritasPrep wrote:All true. You win this round, Murray :)
L:D L
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by 800_or_bust » Wed Apr 13, 2016 9:24 am
DavidG@VeritasPrep wrote:
eitijan wrote:This year, MBB Consulting fired 5% of its employees and left remaining employee salaries
unchanged. Sally, a first-year post-MBA consultant, noticed that that the average (arithmetic
mean) of employee salaries at MBB was 10% more after the employee headcount reduction
than before. The total salary pool allocated to employees after headcount reduction is what
percent of that before the headcount reduction?

(A)98.5%

(B)100.0%

(C)102.8%

(D)104.5%

(E)105.0%



D

Experts, please comment.
Pick simple numbers. Say initially, you've got 100 employees making an average of $100 each. Total salary expenditure = 100*100 = 10,000

Now 5% get fired, so we've got 95 employees. Average salary goes up by 10%, so new average salary is 110 each. New salary expenditure 95*110 = 10,450.

10,450/10,000 = 104.5%, or D
But the first line says "MBB Consulting fired 5% of its employees and left remaining employee salaries unchanged." Therefore, we know the total salary outlays the following year must be less than or equal to the salary outlay the prior year (equal to the prior year only in the case where the 5% who were fired earned zero dollars). It doesn't appear possible to be constrained by that condition, and have the overall average salary increase by 10%. Assume the 5% made zero dollars in the previous year, then the $10,000.00 total salary is apportioned among 95 employees. So the average salary is now $105.26, an increase of 5.26%.
800 or bust!
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by 800_or_bust » Wed Apr 13, 2016 9:31 am
Marty Murray wrote:
DavidG@VeritasPrep wrote:All true. You win this round, Murray :)
L:D L
There's one contingency we didn't consider. The case where the 5% of employees who were canned were paying for the privilege to work there (i.e. a negative salary)! Of course, that begs the question as to why they were fired in the first place! :D
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by GMATGuruNY » Wed Apr 13, 2016 10:02 am
The problem above seems to be modeled after the following problem in GMATPrep:
https://www.beatthegmat.com/confusing-pe ... 91663.html
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by Matt@VeritasPrep » Fri Apr 15, 2016 12:52 pm
800_or_bust wrote:
Marty Murray wrote:
DavidG@VeritasPrep wrote:All true. You win this round, Murray :)
L:D L
There's one contingency we didn't consider. The case where the 5% of employees who were canned were paying for the privilege to work there (i.e. a negative salary)! Of course, that begs the question as to why they were fired in the first place! :D
Good eye! That's a definite possibility - they actually do it in some industries, so it's not at all unreasonable. Assuming that each salary ≥ 0 *is* an assumption!
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