A contractor's annual payroll is $450,000. If the workers compensation rate is 8.5 per $100 of payroll, what is the annual premium?
Correct Answer
D) $38,250
Premium = ($450,000 ÷ $100) × $8.50 = 4,500 × $8.50 = $38,250
Why This Is the Correct Answer
Option D is correct because workers compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. The calculation is: $450,000 ÷ $100 = 4,500 units, then 4,500 × $8.50 = $38,250. This follows the standard workers compensation premium calculation formula used in Georgia and most states.
Why the Other Options Are Wrong
Option A: $38,750
Option A ($38,750) is incorrect because it represents a calculation error. This amount is $500 higher than the correct premium, possibly resulting from misreading the rate as $8.61 per $100 instead of $8.50, or from an arithmetic mistake in the multiplication step.
Option B: $39,250
Option B ($39,250) is incorrect as it's $1,000 higher than the correct premium. This error could result from using a rate of $8.72 per $100 instead of $8.50, or from adding an extra $1,000 due to misunderstanding the calculation process.
Option C: $39,750
Option C ($39,750) is incorrect because it's $1,500 higher than the correct answer. This significant error might result from using an incorrect rate of $8.83 per $100 instead of $8.50, or from fundamental mistakes in the division and multiplication steps.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'DM' like Direct Message. Always convert payroll to $100 units first, then apply the rate.
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