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 directlabor, 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 decisionwise?