A contractor has 8 employees earning a combined $320,000 annually. The workers' compensation rate is $2.80 per $100. What is the monthly premium?
Correct Answer
D) $747
Annual premium = ($320,000 ÷ $100) × $2.80 = $8,960. Monthly premium = $8,960 ÷ 12 = $746.67, rounded to $747.
Why This Is the Correct Answer
The correct answer is D ($747). Step 1: Calculate annual premium = ($320,000 ÷ 100) × $2.80 = 3,200 × $2.80 = $8,960. Step 2: Calculate monthly premium = $8,960 ÷ 12 = $746.67, which rounds to $747.
Why the Other Options Are Wrong
Option A: $896
$896 is incorrect. This figure equals the annual premium divided by 10 ($8,960 ÷ 10), not divided by 12. A common error is dividing by 10 instead of 12 months.
Option B: $672
$672 is incorrect. This may result from dividing the payroll by 100 to get $3,200, then incorrectly treating this as the monthly payroll and multiplying by $2.80 ($3,200 × $2.10 = $6,720, divided by 10 = $672). The error chain involves using a wrong rate or divisor.
Option C: $560
$560 is incorrect. This could result from dividing $320,000 by 12 to get a monthly payroll ($26,667), then dividing by 100 ($266.67) and multiplying by $2.10 instead of $2.80, or from some similar computational shortcut that skips proper formula application.
Memory Technique
Two-step process: 'Annual first, then monthly.' Step 1: (Payroll ÷ 100) × rate = annual. Step 2: Annual ÷ 12 = monthly. For this problem: $320K ÷ 100 = $3,200; × $2.80 = $8,960/year; ÷ 12 = $746.67 ≈ $747/month.
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