A Michigan contractor has 8 employees with a total annual payroll of $480,000. If the workers' compensation rate is $2.15 per $100 of payroll, what is the annual workers' compensation premium?
Correct Answer
C) $10,320
Premium = ($480,000 ÷ $100) × $2.15 = 4,800 × $2.15 = $10,320
Why This Is the Correct Answer
Option C ($10,320) is correct. Divide the payroll by $100 to get the number of $100 units: $480,000 ÷ $100 = 4,800. Multiply by the rate: 4,800 × $2.15 = $10,320.
Why the Other Options Are Wrong
Option A: $12,480
Option A ($12,480) does not follow from the given rate and payroll. It may result from incorrectly using a rate of $2.60 per $100 (4,800 × $2.60 = $12,480) or from a multiplication error.
Option B: $8,240
Option B ($8,240) is lower than the correct answer and does not result from the given formula. It may reflect applying an incorrect rate or misplacing a decimal.
Option D: $14,720
Option D ($14,720) is higher than the correct premium. It may result from using a rate of approximately $3.07 per $100 or from failing to divide the payroll by $100 before multiplying.
Memory Technique
The formula is: (Payroll ÷ 100) × Rate. Think of breaking the payroll into $100 bills, then paying $2.15 for each bill. $480,000 gives you 4,800 'bills'; 4,800 × $2.15 = $10,320.
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