Question 4 (14 points) Sal Amato operates a residential landscaping business in an affluent suburb of St. Louis, which has a loose (tight) labor market of full-time (part-time) workers. 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 55 fertilization clients: Each client required six applications throughout the year and was billed $40 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 5,000 pounds of Type I fertilizer at $0.53 per pound and 10,000 pounds of Type II fertilizer at $0.40 per pound. Actual usage amounted to 3,700 pounds of Type I and 7,800 pounds of Type II. A new, part-time employee was hired to spread the fertilizer with wages of $11.50 per hour; the employee logged a total of 165 hours at client residences. Based on previous knowledge of the operation, articles in trade journals, and talks with other landscapers, Sal established the following standards: Fertilizer purchase price per pound: Type 1, 80.50; Type II, 80.42 Fertilizer effective usage: 36 pounds per application Fertilizer waste: 4 pounds per application Typical hourly wage rate of landscape personnel: 59 Labor time per application: 40 minutes The operation did not go as smoothly as planned, with customer complaints actually much higher than expected. A Compute Sal's direct-material quantity variances, price variances (based on purchase and consumption respectively) for each type of fertilizer (in total 6 variances to compute). Indicate whether each variance is favorable or unfavorable. Round your final answers to two decimal places. (6 points) B. Compute the direct-labor rate and efficiency variances, and indicate whether they are favorable or unfavorable. (Round your final answers to two decimal places.) How are your results consistent or inconsistent with the conditions of the local labor market? (3 points) . Sal purchased 5,000 pounds of Type I fertilizer at $0.53 per pound and 10,000 pounds of Type II fertilizer at $0.40 per pound amounted to 3,700 pounds of Type I and 7,800 pounds of Type II. A new, part-time employee was hired to spread the fertilizer with wages of $11.50 per hour, the employee logged a total of 165 hours at client residences Based on previous knowledge of the operation, articles in trade journals, and talks with other landscapers, Sal established the following standards: Fertilizer purchase price per pound: Type I, 50.50; Type II, 80.42 Fertilizer effective usage: 36 pounds per application Fertilizer waste: 4 pounds per application Typical hourly wage rate of landscape personnel: $9 Labor time per application: 40 minutes The operation did not go as smoothly as planned, with customer complaints actually much higher than expected. A Compute Sal's direct-material quantity variances, price variances (based on purchase and consumption respectively) for each type of fertilizer (in total 6 variances to compute). Indicate whether each variance is favorable or unfavorable. Round your final answers to two decimal places. (6 points) B. Compute the direct-labor rate and efficiency variances, and indicate whether they are favorable or unfavorable. (Round your final answers to two decimal places.) How are your results consistent or inconsistent with the conditions of the local labor market? (3 points) C. Based on the variances you computed in parts (A) and (B), list three potential operational inefficiencies that may cause the unexpected high customer complaints. (3 points) the giyen information, is the fertilizer service a financially profitable business for Sal to continue? (2 points)
