Employee benefits can be rated in terms of Frequency and Instance Cost

Question

Employee benefits can be rated in terms of Frequency and Instance Cost. The frequency of a benefit is the average number of times a single employee would be expected to receive the benefit over the span of a 20-year career with the company. Instance cost is the average cost incurred by the employer to provide the benefit to a single employee at the moment it is delivered. The frequency/Cost ratio (F/C ratio) is computed by dividing the frequency by the instance cost.

A business is considering various benefits to attract and retain employees. From the following list of benefits, select the benefit with the highest F/C ratio and select the benefit with the lowest F/C ratio. Make only two selections, one in each column.

A business is considering various benefits to attract and retain employees. From the following list of benefits, select the benefit with the highest F/C ratio and select the benefit with the lowest F/C ratio. Make only two selections, one in each column.

Sajjad1994 · Accepted Answer

Official Explanation

The voucher for the cup of coffee has the highest frequency rating since it is the only benefit that occurs daily. The voucher also most likely has the lowest instance cost, making it the benefit with the highest F/C ratio.

The correct answer is Every day, each employee receives a voucher for a free cup of coffee.

An employee would receive the lump-sum bonus on the birth of his/her first child only once. By comparison, the expected number of times an employee would receive the 10% raise—the benefit with the next highest instance cost—is 2 times in a 20-year career. Thus, the lump-sum benefit has the smallest frequency and the greatest instance cost. This combination of smallest frequency and greatest instance cost ensures that this benefit has the lowest F/C ratio.

The correct answer is Upon the birth of an employee’s first child, the employee receives a lump-sum bonus equal to 25% of the company’s average annual salary.

adityaviswanadha · Answer

Lowest F/C: Upon the birth of an employee`s first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.

Highest F/C: Every day, each employee receives a voucher for a free cup of coffee.

Apt0810 · Answer

Lowest F/C means lowest frequency which can be of the child birth benefit in which the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.

Highest F/C means highest frequency which can be daily and that is provided by the option :Each day, each employee receives a voucher for a free cup of coffee

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thinkvision · Answer

The correct answer choice will depend upon the the frequency (F) of a benefit a single employee would be expected to receive the benefit over the span of a 20-year career with the company, upon the average cost (C) incurred by the company to provide the benefit:

Lowest F/C: Upon the birth of an employee`s first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.

Highest F/C: Every day, each employee receives a voucher for a free cup of coffee.

Highest F/C: Every day, each employee receives a voucher for a free cup of coffee - highest frequency i.e. daily, with the company incurring the entire voucher cost.

nomoregmat2020 · Answer

For the highest, I initially picked coffee as well, but changed to the second option (breakfast). Breakfast frequency is much lower than the everyday coffee, however, the cost is essentially zero, making the F/C ratio infinite, thus the greatest... Any thoughts?

Rishitha0311 · Answer

Cant the Highest F/C in this case be "B"? As it is mentioned that the breakfast is volunteered by upper management, the employer cost can be zero too. In that can F/C tends to be infinite is what I have thought.

Also for the lowest F/C, why cant it be option E? Although the frequency is 20 over here, how can we compare the monthly cost of food with the average salary of the company?
Can any of the experts please clarify?

Thanks in advance!

chetan2u · Answer

Served by volunteers from Upper management.   Does it mean actually serving them breakfast, not paying for it. Maybe possible. 
May be what they are talking of is bonhomie between senior management and employees.

F/C for 25% of annual salary is 1/0.25S, and for months food is =20/cost of months food for a person 
Let us get both F/C with same numerator to equate them. 
 \frac{1}{0.25S}=\frac{20}{20*0.25S}=\frac{20}{5S} 
Now denominator is FIVE times average annual salary vs one month expenditure on food for one person. 
Which should be more?? Surely 5 times salary.

Hope it addresses the queries.

Rishitha0311 · Answer

Thanks for the explanation!  chetan2u 
The second part of the doubt is clear now, but could you please share the final view on the first one? I still find B to be a better option especially because of the word "Volunteered".

Fish181 · Answer

Highest F/C made sense, lowest F/C was hard because I didn't realize how LOW of a frequency the birth of your first born child would be. Even though the instance cost wasn't that high.

Sneha2021 · Answer

GMATNinja   KarishmaB   chetan2u

Every year, 10% employees are randomly chosen to receive a 10% raise for one year, paid all at once at the end of the end of the fiscal year.
Upon the birth of an employee's first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.

To choose between these 2 options for low F/C, we need to have info about salary of the 10% employee chosen for raise and company's avg annual salary.

Lets say if 10% employee chosen had salary above company average (Chose high salary people)
F/C = 1/.1* (High salary) or F/C=1/.1*low salary (In this case F/C is high company to employee recieve bonus)

Employee recieve bonus, F/C = 1/.25 *(Avg salary)

We cant compare unless we know average salary and the salary of 10% people chosen for raise.

How to come to conclusion that lowest F/C is for Employee recieve bonus?

MBAToronto2024 · Answer

KarishmaB 
I have no clue how to approach it. Can you help please? How to calculate the price - denominator?

Ziniya · Answer

KarishmaB

Could you please help with the explanation.
How can we compare voucher price ? it could be more than month's food supply as will paid yearly and only for a month.

KarishmaB · Answer

\frac{F}{C} = \frac{Frequency}{Cost} To increase F/C, we should increase the frequency and reduce the cost. Daily frequency for every employee is the highest frequency of the options. Cost of a cup of coffee is the lowest cost (whatever actual cost may be). Hence definitely providing a cup of coffee every day to every employee will have highest F/C. Select " Every day, each employee receives a voucher for a free cup of coffee" for highest F/C To decrease F/C, we should reduce F and increase C as much as possible. The lowest frequency is only once in a lifetime and that too may not be for all employees " Upon the birth of an employee's first child". This is lower than any other given frequencies (daily/monthly/yearly/every year for 10% of employees). Also, 25% of the company's average annual salary is the highest cost given. It is greater than the 10% raise. Hence Select "Upon the birth of an employee's first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary" for lowest F/C Here is a discussion on another non Math TPA: https://youtu.be/sOzRtWGu3G0

udayram_56 · Answer

Hello,

As it is mentioned in the question, that the  employers  incur the average cost. In the first option, the term coupon is mentioned, which is cost for company and not managers.

Please let me know if i am thinking right.

Thanks
Uday

The correct answer choice will depend upon the the frequency (F) of a benefit a single employee would be expected to receive the benefit over the span of a 20-year career with the company, upon the average cost (C) incurred by the company to provide the benefit:

Lowest F/C: Upon the birth of an employee`s first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.

Highest F/C: Every day, each employee receives a voucher for a free cup of coffee.

Highest F/C: Every day, each employee receives a voucher for a free cup of coffee - highest frequency i.e. daily, with the company incurring the entire voucher cost.

KarishmaB · Answer

'Employers' is the company. All the cost is borne by the company.

aashnaag · Answer

I agree with this.. this was my thought process too. I’m wondering why it’s incorrect?

cheshire · Answer

the formula is F/C or frequency / Cost. Lets shorten the window from 20 years to 2 months just for the sake of simplicity.

If an employee received a voucher for coffee everyday (60 total) and they costed the company $1 that would equal 60/1 = 60.

Breakfast is served once a month (2 total) and probably costs $5 = 2/5

60>2/5 so coffee has the highest F/C

kayarat600 · Answer

Why would I assume a cost for the voucher that is low maybe they are getting the voucher from a top tier batista the same way experts have picked apart the free volunteer food but eliminating this optionn is easier.

cheshire · Answer

Because a standard cup of coffee is not 30x more expensive than a breakfast. The equation factors in frequency and cost and this option has the highest frequency and lowest cost.

Employee benefits can be rated in terms of Frequency and Instance Cost

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Highest F/C	Lowest F/C	Benefit
		Every day, each employee receives a voucher for a free cup of coffee.
		Every month, employees are each served breakfast by volunteers from upper management.
		Every year, 10% employees are randomly chosen to receive a 10% raise for one year, paid all at once at the end of the end of the fiscal year.
		Upon the birth of an employee's first child, the employee receives a lump-sum bonus equal to 25% of the company`s average annual salary.
		Every year, each employee is reimbursed for a month's supply of food for one person.

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Employee benefits can be rated in terms of Frequency and Instance Cost

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