Question

Denton Ltd has a weekly payroll of $500 000. The employees receive entitlements to two (2) weeks sick leave per year. The sick leave entitlements are classified as non-vesting. Past experience, and experience within the industry, suggests that: 50 per cent of employees will use their full 2 weeks entitlement each year; 40 per cent of employees will take 1 week’s sick leave each year; and 10 per cent of employees will take 1 day’s sick leave each year.

(a) Calculation of expected annual sick leave expense for Badger Ltd (on the basis of average salaries);

$ $500 000 * 2 * 0.5 = 500 000

$500 000 * 1 * 0.4 = 200 000

$500 000 * 1/5 *0.1 = 10 000 710 000 (equal to $13,654 / week)

as follwing this anwer why 1 days is 1/5?

Answer 1

As per information of the question it is clear that weekly payroll is $500000.

So in case of 50% employees will use their full 2 week’s sick leave each year we will multiple it by 2.

And in case of 40% employees will use their 1 week’s sick leave each year we will multiple it by 1.

But main question is why we use 1/5 in case when 10 % of employees take 1 day’s sick leave each year.

Answer of this question is quite simple as we know that when we assume 5 days in a week then we have to multiply $500000 with 1/5 because $500000 is for one week hence for knowing actual amount of 1 day we will have to divide a week by 5 that is why we use following calculation ($500000 * 1/5 * 0.1) = $13654

Thus it is clear that when 1 day is 1/5 of a week then we will use 1/5 in place of 1 week.