A contractor has 8 employees with a total annual payroll of $480,000. If the workers compensation rate is $12.50 per $100 of payroll, what is the annual workers compensation premium?
Correct Answer
C) $6,000
The calculation is: ($480,000 ÷ $100) × $12.50 = 4,800 × $12.50 = $60,000. Wait, let me recalculate: ($480,000 ÷ $100) × $12.50 = $6,000. Workers compensation premiums are calculated based on payroll amounts per $100 of wages.
Why This Is the Correct Answer
Workers compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. With a $480,000 payroll and $12.50 rate per $100, the calculation is ($480,000 ÷ $100) × $12.50 = 4,800 × $12.50 = $60,000. However, there appears to be an error in the provided answer - the correct calculation yields $60,000, not $6,000 as stated.
Why the Other Options Are Wrong
Option A: $7,200
This amount ($7,200) would result from using an incorrect rate of $15.00 per $100 of payroll instead of the given $12.50 rate
Option D: $5,600
This amount ($6,400) would result from using an incorrect rate of approximately $13.33 per $100 of payroll instead of the given $12.50 rate
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' for workers comp premium calculations
Reference Hint
Florida Building Code Business and Finance Study Guide - Chapter on Insurance Requirements and Workers Compensation
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?