Question

Cole manufactures coffee mugs that it sells to other companies for customizing with their own logos. Cole prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,100 coffee mugs per​ month:

Data Table

		Direct materials (			0.2	lbs @		$0.25		per lb)		$0.05
		Direct labor	(	3	minutes @		$0.10		per minute)			0.30
		Manufacturing overhead:
		Variable		(	3	minutes @		$0.05		per minute)	$0.15
		Fixed	(	3	minutes @		$0.14		per minute)		0.42	0.57
		Total cost per coffee mug										$0.92

Actual cost and production information for July​ follow:

a.

Actual production and sales were

62,800

coffee mugs.

b.

Actual direct materials usage was

12,000

​lbs., at an actual price of

$0.18

per lb.

c.

Actual direct labor usage of

201,000

minutes at a total cost of

$26,130.

d.

Actual overhead cost was

$40,800

Requirements

1.	Compute the price and efficiency variances for direct materials and direct labor.
2.	Journalize the usage of direct materials and the assignment of direct​labor, including the related variances.
3.	For manufacturing​ overhead, compute the total​ variance, the flexible budget​ variance, and the production volume variance. ​(Hint​: Remember that the fixed overhead in the flexible budget equals the fixed overhead in the static​ budget.)
4.	Cole intentionally hired​ more-skilled workers during July. How did this decision affect the cost​ variances? Overall, was the decision​wise?