A contractor's workers' compensation premium is calculated at $3.50 per $100 of payroll for concrete work. If the concrete crew's annual payroll is $285,000, what is the annual workers' compensation premium for this classification?
Correct Answer
A) $9,975
Workers' compensation premium = (Payroll ÷ 100) × Rate. ($285,000 ÷ 100) × $3.50 = 2,850 × $3.50 = $9,975.
Why This Is the Correct Answer
The workers' compensation premium calculation follows the standard formula of dividing the total payroll by 100, then multiplying by the rate per $100 of payroll. With a payroll of $285,000 and a rate of $3.50 per $100, the calculation is ($285,000 ÷ 100) × $3.50 = 2,850 × $3.50 = $9,975. This represents the annual premium cost for workers' compensation insurance for the concrete crew classification.
Why the Other Options Are Wrong
Option B: $11,975
This answer of $8,975 is $1,000 too low, likely resulting from a calculation error such as using an incorrect rate or making an arithmetic mistake in the multiplication step.
Option D: $8,975
This answer of $11,975 is $2,000 too high, indicating a significant calculation error, possibly from using the wrong rate or formula entirely.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' - this ensures you don't forget to convert the payroll to the per-$100 basis before applying the rate.
Reference Hint
Look up workers' compensation insurance calculations in the Business and Finance Management chapter, specifically the section on insurance premium calculations and payroll-based rates.
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