A contractor's workers compensation rate is $8.50 per $100 of payroll for a specific classification. If the annual payroll for this classification is $485,000, what is the workers compensation premium?
Correct Answer
C) $41,225.00
Workers compensation premium = (Payroll ÷ $100) × Rate = ($485,000 ÷ $100) × $8.50 = 4,850 × $8.50 = $41,225.00.
Why This Is the Correct Answer
Workers compensation premiums are calculated by dividing the annual payroll by $100 to get the number of units, then multiplying by the rate per $100. The formula is: (Payroll ÷ $100) × Rate = ($485,000 ÷ $100) × $8.50 = 4,850 × $8.50 = $41,225.00. This standardized calculation method ensures consistent premium calculations across all classifications and payroll amounts.
Why the Other Options Are Wrong
Option A: $4,122.50
This answer of $4,122.50 appears to be the result of incorrectly dividing by 1,000 instead of 100, or making an error in the multiplication step of the calculation.
Option B: $5,705.88
This answer of $5,705.88 is too low and suggests an error in the calculation process, possibly dividing by an incorrect factor or misapplying the rate.
Memory Technique
Remember 'Payroll Per 100 times Rate' - PPR. Think 'Per $100' whenever you see workers comp rates to remember the division step before multiplication.
Reference Hint
Look up Workers Compensation Insurance calculations in Chapter 15 (Insurance) or the Business and Finance section of your contractor reference manual.
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?