Problem 10-36 Variance Calculation; Analysis; Service Business (LO 10-1, 10-3)

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 years experience with 57 fertilization clients:

• Each client required six applications throughout the year and was billed $42.00 per application.
• Two applications involved Type I fertilizer, which contains a special ingredient for weed control. The remaining four applications involved Type II fertilizer.
• Sal purchased 5,800 pounds of Type I fertilizer at $0.61 per pound and 10,800 pounds of Type II fertilizer at $0.48 per pound. Actual usage amounted to 4,210 pounds of Type I and 8,200 pounds of Type II.
• A new, part-time employee was hired to spread the fertilizer. Sal had to pay premium wages of $12.30 per hour because of a very tight labor market; the employee logged a total of 181 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 I, $0.58; Type II, $0.50
• Fertilizer usage: 48 pounds per application
• Typical hourly wage rate of landscape personnel: $9.80
• 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 Sals direct-material variances of 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 Sals 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?

Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req Req 3B Req 4 Reg 5 Compute Sal's direct-material variances of each type of fertilizer. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round your intermediate calculations and final answers to 2 decimal places.) Direct-Material Type Type II Price variance Quantity variance Purchase price variance Reg 1 Reg 2 Reg 3A Reg 3B Reg 4 Reg 5 Compute the direct-labor variances. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations and round your final answers to 2 decimal places.) Direct-Labor Rate variance Efficiency variance Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Req 3B Req 4 Reg 5 Compute the actual cost of the client applications. (Note: Exclude any fertilizer in inventory, as remaining fertilizer can be used next year.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Actual cost Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req 3A Req 3B Reg 4 Reg 5 Calculate the profit or loss of Sal's new lawn fertilization service. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req Req 3B Reg 4 Reg 5 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? (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations. Round your answer to 2 decimal places.) Total Variance Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Req 3B Req 4 Reg 5 Should the fertilizer service be continued next year? Should the fertilizer service be continued next year?