Stenback manufactures coffee mugs that it sells to other companies for customizing with their own logos. Stenback 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 59,900 coffee mugs per month:

Actual cost and production information for July follow:

a. Actual production and sales were 62,600 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 199,000 minutes at a total cost of $25,870.

d. Actual overhead cost was $40,500.
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. Stenback intentionally hired more-skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

Transcribed Image Text:

Direct materials (0.2 lbs @ $0.25 per lb) $ 0.05 0.30 Direct labor (3 minutes @ $0.10 per minute) Manufacturing overhead: Variable (3 minutes @ $0.05 per minute) $ 0.15 Fixed (3 minutes Total cost per coffee mug $0.13 per minute) 0.39 0.54 $ 0.89