Last year a client's total wages cost was £1,200,000 for an average of 40 employees. This year the average number of employees is 44 and all staff received a 3% pay rise from the first day of the year. What is the auditor's expected wages cost for this year?

Correct answer: B) £1,359,600

Explanation

Average cost per employee last year = £1,200,000 / 40 = £30,000. After the 3% rise: £30,000 x 1.03 = £30,900. Expected cost = £30,900 x 44 = £1,359,600. £1,320,000 ignores the pay rise, £1,236,000 ignores the extra employees, and £1,356,000 wrongly adds the 3% and 10% increases together instead of multiplying them.