A general contractor's workers' compensation premium is calculated at $8.50 per $100 of payroll for a classification code. If the monthly payroll is $125,000, what is the monthly workers' compensation premium?
Correct Answer
B) $10,625
The calculation is: ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625. Workers' compensation premiums are typically calculated per $100 of payroll.
Why This Is the Correct Answer
The correct answer is A because workers' compensation premiums are calculated by dividing the total payroll by $100, then multiplying by the rate per $100. With a $125,000 monthly payroll and a rate of $8.50 per $100, the calculation is ($125,000 ÷ $100) × $8.50 = 1,250 × $8.50 = $10,625. This is the standard method used by insurance companies to determine workers' compensation premiums based on payroll exposure.
Why the Other Options Are Wrong
Option A: $11,025
This answer of $11,025 is incorrect because it overestimates the premium by $400, possibly from using an incorrect rate or miscalculating the payroll units.
Option D: $11,250
This answer of $10,825 is incorrect because it appears to use an incorrect rate or calculation method, resulting in an amount $200 higher than the correct premium.
Memory Technique
Remember 'Divide by 100, then Multiply' - think 'D100M' to recall that you must first convert payroll to $100 units before applying the rate.
Reference Hint
Look up workers' compensation insurance calculations in the Business and Finance chapter, specifically the section on insurance premium calculations and payroll-based premiums.
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?