Question 4

One of the practices that you have noted about the operations of Saddleback Farms is that the company depends on historical and actual costs to analyze results. You encouraged Mr. Livingstone to adopt a standard costing system and conducted a study based on which you recommended the following standards for the Coconut water processing system.

Standard Costs for one (1) liter of Coconut Water

Coconuts 4 @ $1.50 per coconut $6.00

Bottles 1 @ $0.50 per bottle 0.50

Machine time 5 minutes @ $30 per hour 2.50

Labels 1 @ $0.75 per label 0.75

Direct labor 20 minutes @ $12 per hour 4.00

Total standard costs $13.75

At the end of June 2019, one month after implementation, you discovered that Saddleback Farms processed 1,200 liters of coconut water and incurred the following costs:

Actual Costs incurred for the Month

Coconuts used 6,000 $ 9,600

Bottles used 1,300 676

Machine time 7,200 minutes 3,744

Labels 1,400 980

Direct labor 18,000 minutes 3,750

Total cost $18,750

Required: Prepare all material and labor variances for Saddleback Farms for June (include price, quantity, rate and efficiency variances) and explain to Mr. Livingstone what happened.