A contractor employs 25 workers with an average annual salary of $52,000. If the workers' compensation rate is $8.50 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
D) $110,500
Total annual payroll = 25 × $52,000 = $1,300,000. Workers' comp premium = ($1,300,000 ÷ $100) × $8.50 = 13,000 × $8.50 = $110,500.
Why This Is the Correct Answer
The calculation correctly determines the total annual payroll by multiplying 25 workers by $52,000 each, yielding $1,300,000. The workers' compensation premium is then calculated by dividing the total payroll by $100 (since the rate is per $100 of payroll) and multiplying by the rate of $8.50. This gives us 13,000 × $8.50 = $110,500, which matches option A.
Why the Other Options Are Wrong
Option A: $108,250
This answer of $110,750 is close to the correct answer but represents a minor calculation error, possibly in the final multiplication or rounding.
Option B: $110,750
This answer of $108,250 appears to result from a calculation error, possibly using an incorrect rate or making an arithmetic mistake in the final multiplication step.
Memory Technique
Remember 'Per 100 Rule': Workers' comp rates are always per $100 of payroll, so divide total payroll by 100, then multiply by the rate (Payroll ÷ 100 × Rate = Premium).
Reference Hint
Look up workers' compensation insurance calculations in the Business and Finance Management chapter, specifically the section on insurance costs and payroll calculations.
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