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 .

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.

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.

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