A contractor's workers compensation premium is calculated based on a rate of $8.50 per $100 of payroll for a specific classification. If the annual payroll for this classification is $450,000, what is the workers compensation premium?
Correct Answer
D) $38,250
Workers comp premium = (Payroll ÷ 100) × Rate. ($450,000 ÷ 100) × $8.50 = 4,500 × $8.50 = $38,250.
Why This Is the Correct Answer
The workers compensation premium calculation follows the standard formula where the rate is applied per $100 of payroll. First, divide the total payroll by 100 to determine how many $100 units exist ($450,000 ÷ 100 = 4,500 units). Then multiply this by the rate of $8.50 per $100 to get the premium (4,500 × $8.50 = $38,250). This represents 8.5% of the total payroll, which is typical for workers compensation premiums.
Why the Other Options Are Wrong
Option A: $3,825
Option D ($45,000) is incorrect because it represents 10% of the payroll amount rather than applying the proper rate calculation. This suggests confusion between percentage-based calculations and the per-$100 rate structure used in workers compensation insurance.
Option B: $52,941
Option C ($52,941) is incorrect because it appears to result from dividing the rate by the payroll instead of multiplying, or using an incorrect formula altogether. This represents a fundamental misunderstanding of how workers compensation premiums are calculated.
Option C: $45,000
Option B ($3,825) is incorrect because it represents only 10% of the correct premium. This error likely occurs from miscalculating the payroll units, possibly dividing by 1,000 instead of 100, or making a decimal place error in the final multiplication step.
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?