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:

When a normal costing system is used, clients using proportionately more full-time employees than trainees will ________.

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:

When a normal costing system is used, clients using proportionately more full-time employees than trainees will ________.

Quizplus · Accepted Answer

In a normal costing system, indirect costs are applied on a professional labor-hour basis that includes both full-time employees and trainees. Clients who use proportionately more full-time employees than trainees will be under billed for actual resources used, as the indirect costs applied to their project will be based on a lower proportion of trainee hours. Therefore, the actual resources used by the client will not be fully captured in the billing, leading to under billing.

Elite Stationary Employs 20 Full-Time Employees and 10 Trainees