Sal Amato operates a residential landscaping business in an affluent suburb of S

Question

Sal Amato operates a residential landscaping business in an affluent suburb of St. Louis. In an effort to provide quality service, he has concentrated solely on the design and installation of upscale landscaping plans (e.g., trees, shrubs, fountains, and lighting). With his clients continually requesting additional services, Sal recently expanded into lawn maintenance, including fertilization. The following data relate to his first year's experience with 56 fertilization clients: · Each client required six applications throughout the year and was billed $41.00 per application. • Two applications involved Type I fertilizer, which contains a special ingredient for weed control. The remaining four applications involved Type Il fertilizer. Sal purchased 5,700 pounds of Type 1 fertilizer at $0.60 per pound and 10,700 pounds of Type Il fertilizer at $0.47 per pound. Actual usage amounted to 4,000 pounds of Typel and 8,150 pounds of Type II. • A new, part-time employee was hired to spread the fertilizer. Sal had to pay premium wages of $12.20 per hour because of a very tight labor market; the employee logged a total of 179 hours at client residences. Based on previous knowledge of the operation, articles in trade journals, and conversations with other landscapers, Sal established the following standards: Fertilizer purchase price per pound: Type 1, $0.57; Type II, $0.49 Fertilizer usage: 47 pounds per application Typical hourly wage rate of landscape personnel: $9.70 Labor time per application: 40 minutes • The operation did not go as smoothly as planned, with customer complaints actually much higher than expected. Required: 1. Compute Sal's direct-material variances for each type of fertilizer. 2. Compute the direct-labor variances. 3-a. Compute the actual cost of the client applications. (Note: Exclude any fertilizer in inventory, as remaining fertilizer can be used next year.) 3-b. Calculate the profit or loss of Sal's new lawn fertilization service. 4. On the basis of the variances that you computed in parts (1) and (2) was the new service a success from an overall cost-control perspective? 5. Should the fertilizer service be continued next year?

Explanation / Answer

Req 1:

Req2:

Req 3A:

Req 3B:

Total variance= 1917.7 F

Req 5:

Fertiliser business should be continued

Type 1 Type 2 Actual clients 56 56 Standard applicatoins per unit 2 4 Standard applications for total clients 112 224 Standard fertilisers per application 47 47 Standard fertilisers for total clients 5264 10528 Type 1 Standard quantity Standard rate Standard cost Actual quantity Actual rate Actual cost SQ SP SC AQ AP AC 5,264.00 0.57 3,000.48 4000 0.6 2400 Total material cost/spending variance AQ*AP - SQ*SP 3000.48-2400 600.48 600 F Material price variance AQ*(SP-AP) 4000*(0.57-0.6) -120 120 U Material quantity variance SP*(SQ-AQ) 0.57*(5264-4000) 720.48 720 F

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