A contractor has 12 employees with a total annual payroll of $480,000. If the workers' compensation rate is $3.50 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
B) $16,800
Premium = ($480,000 ÷ $100) × $3.50 = 4,800 × $3.50 = $16,800
Why This Is the Correct Answer
$16,800 is correct. The formula is: (Total Payroll ÷ $100) × Rate = ($480,000 ÷ $100) × $3.50 = 4,800 × $3.50 = $16,800.
Why the Other Options Are Wrong
Option A: $21,600
$21,600 is incorrect. This would result from applying a rate of $4.50 per $100 instead of $3.50 per $100: 4,800 × $4.50 = $21,600.
Option C: $14,400
$14,400 is incorrect. This would result from applying a rate of $3.00 per $100 instead of $3.50: 4,800 × $3.00 = $14,400.
Option D: $18,200
$18,200 is incorrect. This figure does not result from any straightforward application of the given rate to the given payroll. It may result from a miscalculation or using an incorrect payroll figure.
Memory Technique
Workers' comp rate is per $100, so convert payroll to hundreds first. $480,000 ÷ 100 = 4,800 'units.' Then 4,800 × $3.50 = $16,800.
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