Question

Elite Stationary employs 20​ full-time employees and 10 trainees. Direct and indirect costs are applied on a professional​ labor-hour basis that includes both employee and trainee hours. Following is information for​ 2018: Budget Actual Indirect costs ​$250,000 ​$400,000 Annual salary of each employee ​$200,000 ​$250,000 Annual salary of each trainee ​$40,000 ​$45,000 Total professional​ labor-hours ​40,000 dlh ​50,000 dlh When a normal costing system is​ used, clients using proportionately more​ full-time employees than trainees will​ ________.

Answer 1

Since cost per hour of full-time employees is $150, while cost per hour of trainees $27, clients using proportionately more​ full-time employees than trainees will​ be under billed or charged for the resources or labor hour used.

Step-by-step explanation:

The data in the question are merged and they are first separated before answering the question as follows:

Details Budget Actual

Indirect costs ​ $250,000 ​ $400,000

Annual salary of each employee ​ $200,000 ​ $250,000

Annual salary of each trainee ​ $40,000 ​ $45,000

Total professional​ labor-hours ​40,000 dlh ​ 50,000 dlh

In normal costing system, actual costs are used.

Therefore, labor hours for each category and cost per hour can be calculated as follows:

Full-time employees total labor hours = (20/30) * 50,000 = 33,333 hours

Each full-time employee annual labor hour = 33,333/20 = 1,667 hours

Cost per hour of full-time employees = $250,000/1,667 = $150 per hour

Trainee total labor hours = (10/30) * 50,000 = 16,667 hours

Each trainee annual labor hours = 16,667/10 = 1,667 hours

Cost per hour of trainees = $45,000/1,667 = $27 per hour

Since cost per hour of full-time employees is $150, while cost per hour of trainees $27, clients using proportionately more​ full-time employees than trainees will​ be under billed or charged for the resources or labor hour used.