A contractor has 12 employees with a total annual payroll of $480,000. If the workers compensation rate is $12.75 per $100 of payroll, what is the annual premium?
Correct Answer
B) $61,200
Annual premium = ($480,000 ÷ $100) × $12.75 = 4,800 × $12.75 = $61,200.
Why This Is the Correct Answer
The calculation correctly applies the workers compensation rate formula. With a $480,000 annual payroll and a rate of $12.75 per $100 of payroll, you divide the payroll by $100 to get 4,800 units, then multiply by the rate: 4,800 × $12.75 = $61,200. This represents the standard method for calculating workers compensation premiums based on payroll exposure.
Why the Other Options Are Wrong
Option A: $37,647
This answer of $37,647 appears to result from an incorrect calculation, possibly dividing by the wrong factor or applying an incorrect rate. The mathematical steps don't align with the standard workers compensation premium calculation formula of (payroll ÷ $100) × rate per $100.
Option C: $6,120
This answer of $6,120 is exactly one-tenth of the correct answer, suggesting the calculator forgot to multiply by the full rate or made a decimal place error. It appears someone calculated $480,000 ÷ $100 = 4,800 but then multiplied by $1.275 instead of $12.75.
Option D: $76,500
This answer of $76,500 is too high and suggests an error in the rate application. It might result from incorrectly using $15.94 per $100 instead of $12.75, or from adding an unnecessary factor to the calculation that inflates the final premium amount.
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