When calculating workers' compensation rates for overhead allocation, a contractor has a base rate of $8.50 per $100 of payroll with an experience modification factor of 1.15. What is the effective rate per $100 of payroll?
Correct Answer
A) $9.78
The effective rate is calculated by multiplying the base rate by the experience modification factor: $8.50 × 1.15 = $9.78 per $100 of payroll.
Why This Is the Correct Answer
The effective workers' compensation rate is calculated by multiplying the base rate by the experience modification factor (EMF). This accounts for the contractor's safety record and claims history. When the base rate of $8.50 is multiplied by the EMF of 1.15, it results in an effective rate of $9.78 per $100 of payroll. This higher rate reflects increased risk due to the EMF being above 1.0.
Why the Other Options Are Wrong
Option C: $8.50
$8.50 is only the base rate before applying the experience modification factor, not the effective rate
Option D: $7.39
$10.15 appears to be an arbitrary number that doesn't result from the proper calculation of $8.50 × 1.15
Memory Technique
Remember 'EMF Multiplies' - Experience Modification Factor always multiplies the base rate. If EMF > 1.0 = bad record = higher cost. If EMF < 1.0 = good record = lower cost.
Reference Hint
Look up workers' compensation calculations and experience modification factors in the Business and Finance Management chapter or Cost Estimating section
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