A general contractor has 25 employees and needs to calculate the annual cost of providing health insurance. If the monthly premium is $485 per employee and the company pays 80% of the cost, what is the annual company cost?
Correct Answer
B) $116,400
Monthly cost per employee: $485 × 0.80 = $388. Annual cost per employee: $388 × 12 = $4,656. Total annual cost: $4,656 × 25 employees = $116,400.
Why This Is the Correct Answer
Option B correctly calculates the annual company cost by following the proper sequence: monthly premium per employee ($485) × company percentage (80%) = $388 company cost per employee per month. Then $388 × 12 months = $4,656 annual cost per employee. Finally, $4,656 × 25 employees = $116,400 total annual company cost. This accounts for the company paying 80% while employees pay the remaining 20%.
Why the Other Options Are Wrong
Option A: $97,000
This answer of $97,000 appears to miscalculate the company's portion or the number of months. It's significantly lower than the correct calculation and doesn't properly account for all 25 employees over 12 months at the 80% company contribution rate.
Option C: $93,120
This answer of $93,120 likely represents an error in calculating the company's percentage contribution. It may have used 70% instead of 80%, or made an error in the monthly/annual conversion, resulting in an underestimation of the true company cost.
Option D: $145,500
This answer of $145,500 is too high and likely represents the total cost before applying the 80% company contribution rate. It appears to calculate the full premium cost for all employees rather than just the company's 80% portion.
Memory Technique
Remember 'PPE': Premium × Percentage × Employees. First find company cost Per employee Per month, then multiply by 12 months, then by total Employees.
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