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 59 fertilization clients: Each client required six applications throughout the year and was billed $44.00 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 5,400 pounds of Type I fertilizer at $0.57 per pound and 10,400 pounds of Type II fertilizer at $0.44 per pound. Actual usage amounted to 3,790 pounds of Type I and 8,000 pounds of Type II. A new, part-time employee was hired to spread the fertilizer. Sal had to pay premium wages of $11.90 per hour because of a very tight labor market; the employee logged a total of 173 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, $0.54; Type II, $0.46 Fertilizer usage: 44 pounds per application Typical hourly wage rate of landscape personnel: $9.40 Labor time per application: 40 minutes The operation did not go as smoothly as planned, with customer complaints actually much higher than expected. Compute Sal's purchase price variance for each type of fertilizer.
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 59 fertilization clients: Each client required six applications throughout the year and was billed $44.00 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 5,400 pounds of Type I fertilizer at $0.57 per pound and 10,400 pounds of Type II fertilizer at $0.44 per pound. Actual usage amounted to 3,790 pounds of Type I and 8,000 pounds of Type II. A new, part-time employee was hired to spread the fertilizer. Sal had to pay premium wages of $11.90 per hour because of a very tight labor market; the employee logged a total of 173 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, $0.54; Type II, $0.46 Fertilizer usage: 44 pounds per application Typical hourly wage rate of landscape personnel: $9.40 Labor time per application: 40 minutes The operation did not go as smoothly as planned, with customer complaints actually much higher than expected. Compute Sal's purchase price variance for each type of fertilizer.
Chapter17: Property Transactions: §1231 And Recapture Provisions
Section: Chapter Questions
Problem 2RP
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Transcribed Image Text: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 59
fertilization clients:
Each client required six applications throughout the year and was billed
$44.00 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 5,400 pounds of Type I fertilizer at $0.57 per pound and
10,400 pounds of Type II fertilizer at $0.44 per pound. Actual usage
amounted to 3,790 pounds of Type I and 8,000 pounds of Type II.
A new, part-time employee was hired to spread the fertilizer. Sal had to
pay premium wages of $11.90 per hour because of a very tight labor
market; the employee logged a total of 173 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, $0.54; Type II, $0.46
Fertilizer usage: 44 pounds per application
Typical hourly wage rate of landscape personnel: $9.40
Labor time per application: 40 minutes
The operation did not go as smoothly as planned, with customer
complaints actually much higher than expected.
Compute Sal's purchase price variance for each type of fertilizer.
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