A contractor has 3 employees with annual wages of $35,000, $42,000, and $38,000. If the workers' compensation rate is $2.40 per $100 of payroll, what is the annual premium?
Correct Answer
C) $2,760
Total payroll = $35,000 + $42,000 + $38,000 = $115,000. Premium = ($115,000 ÷ $100) × $2.40 = 1,150 × $2.40 = $2,760.
Why This Is the Correct Answer
Total payroll = $35,000 + $42,000 + $38,000 = $115,000. Premium = ($115,000 ÷ $100) × $2.40 = 1,150 × $2.40 = $2,760. Always sum all wages first, then apply the rate to total payroll.
Why the Other Options Are Wrong
Option A: $2,940
$2,940 results from using an incorrect total payroll (e.g., $122,500) or applying the wrong rate. This answer does not match the correct arithmetic.
Option B: $2,850
$2,850 results from using a total payroll of approximately $118,750, which is not the correct sum. This is an arithmetic error in the payroll summation.
Option D: $3,120
$3,120 results from using a total payroll of $130,000 — overstating the payroll by $15,000. This is a common addition error or use of an incorrect employee wage figure.
Memory Technique
Step 1: Add all wages — $35 + $42 + $38 = $115 (in thousands) = $115,000. Step 2: Move decimal two places left → 1,150 'hundreds.' Step 3: 1,150 × $2.40 — think 1,150 × 2 = 2,300, plus 1,150 × 0.40 = 460 → $2,300 + $460 = $2,760.
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