Problem
Standard costing and variance analysis (chapter 15 & 16)
Last year, you started a new garden maintenance service including fertilisation. In the first year, you have serviced 70 clients. For each client, you need to do five applications of fertilising during the year. For each client, two applications involve Chemical X, and three applications involve Chemical Y.
At the beginning of the year, you had estimated the following budgeted figures:
I. 90 Clients
II. Chemical purchase price- Chemical X $0.60 per kg, Chemical Y $0.52 per kg
III. Chemical usage- 40 kilogram per spraying for each X and Y applications.
IV. Budgeted wage rate per employee - $30 per hour
V. Labour time per application per client - 40 minutes
You purchase Chemical X 5000 kg at $ 0.63 per kilogram and Chemical Y 10 000 kg at $0.50 per kilogram. The actual amount of Chemical usage is 3 700 and 7 400 kilograms, respectively.
You have hired Rob to spray the fertilizer. You paid $32.50 per hour to Rob due to the hot weather, and Rob worked a total of 160 hours during the year. Unfortunately, you have received a large number of complaints from your client during the year.
Task
I. Calculate the direct material price and usage variances for each type of fertilizer.
II. Calculate the static-budget variance, the flexible-budget variance, and the rate and efficiency variances for direct labour.
III. Consider the variances that you calculated in parts (I) & (II), what seems to have happened that gave rise to customer complaints?