A contractor's workers' compensation policy has a rate of $8.50 per $100 of payroll. If the annual payroll is $485,000, what is the annual workers' compensation premium?
Correct Answer
D) $41,225
Workers' compensation premium = (Payroll ÷ 100) × Rate = ($485,000 ÷ 100) × $8.50 = 4,850 × $8.50 = $41,225.
Why This Is the Correct Answer
Option C is correct because workers' compensation premiums are calculated by dividing the total payroll by 100 to get the number of rate units, then multiplying by the rate per $100. The calculation is ($485,000 ÷ 100) × $8.50 = 4,850 × $8.50 = $41,225. This follows the standard industry formula for workers' compensation premium calculations.
Why the Other Options Are Wrong
Option A: $43,500
$40,125 suggests an error in the calculation process, possibly from rounding errors or using an incorrect payroll figure
Option B: $40,125
$38,250 appears to result from an incorrect rate calculation, possibly using $7.89 per $100 instead of the given $8.50 rate
Memory Technique
Remember 'Payroll Per 100' - PPH: Payroll ÷ 100, then multiply by rate. Think 'Per Hundred Helper' to remember the division step comes first
Reference Hint
Florida Building Construction Standards - Chapter on Insurance Requirements and Workers' Compensation or Business and Finance section covering insurance calculations
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