A general contractor operates 3 company vehicles and needs commercial auto insurance. The annual premium is $4,800 for all vehicles. If the contractor wants to budget monthly, what amount should be set aside each month?
Correct Answer
D) $400
Monthly insurance cost = $4,800 ÷ 12 months = $400 per month. Proper budgeting requires breaking down annual costs into manageable monthly amounts.
Why This Is the Correct Answer
Option B is correct because monthly budgeting requires dividing the annual premium by 12 months. The calculation is straightforward: $4,800 ÷ 12 = $400 per month. This ensures the contractor sets aside the exact amount needed each month to cover the annual insurance premium. Proper cash flow management requires accurate monthly budget allocations for all business expenses.
Why the Other Options Are Wrong
Option A: $500
Option C ($450) is incorrect because $450 × 12 months = $5,400, which exceeds the actual annual premium by $600.
Option B: $350
Option A ($350) is incorrect because $350 × 12 months = $4,200, which falls $600 short of the required $4,800 annual premium.
Memory Technique
Remember 'Annual ÷ 12 = Monthly' - think of the 12 months on a calendar when converting any annual business expense to monthly budget amounts.
Reference Hint
Business and Finance chapter - Cash Flow Management and Insurance Requirements section
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