Question

McKnight manufactures coffee mugs that it sells to other companies for customizing with their own logos. McKnight 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 59,700 coffee mugs per month: 3: (Click the icon to view the cost data.) Actual cost and production information for July 2018 follows: (Click the icon to view actual cost and production information.) Read the requirements. Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor. Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost: AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.) Formula Variance = Direct materials cost variance Direct labor cost variance

Answer all the REQUIREMENTS step by step Please. I need to understand it. Thanks!

Answer 1

	Cost per Mugg($/ Mugg)	Reference
Direct Material	0.05
(0.2 lbs@ 0.25/lb)		SP=$0.25/LB
Direct Labour	0.42
(3 mins@ 0.14/min)		SP=$0.14/Min
Manufacturing OH
Variable	0.12
(3 mins@ 0.04/min)		AH=$0.04/Min
Fixed	0.39
(3 mins@ 0.13/min)
Total Cost per Mugg	0.98
Actual prodction & Sales- Mugg$	62,400
Actual Direct Material Unit(lb)	10,000	AQ
Actual cost ($/lb)	0.17	AP
Actual Direct Labour Min(A)	2,03,000	AH
Actual direct labour cost$(B)	32,480
AP(B/A)	0.16
Actual OH Variable $	4,060	(AP*AH)
Fixed OH $	36,440	Actual FOH
Selling & Distribution $	98,000

Material Price Variance $	(AP-SP)*AQ	VAR
	(0.17-0.25)*10000
Material Price Variance $	800	F
Material Efficiency Variance $
	(AQ-SQ)*SP
	(10000-(62400*0,2)*0,25
Material Efficiency Variance $	620	F
Direct Labour Price Variance $
	(AP-SP)*AH
	(0.17-0.14)*203000
	6090	U
Direct Labour Efficiency Variance $
	(AH-SH)*SP
	(203000-62400*3)*0.14
	2,212	U
Variable OH Spending var$
	(AP*AH-SP*AH)
	(4060-(203000*0.04))
	4,060	F
Variable OH Efficiency var$
	(AH-SH)*SP
	((203000-(62400*3))*0.04
	632	U
fIXED OH Spending var$
	Actual FOH - Budgeted FOH
	(36400-(62400*0.39))
	12,064	U

Journal Entries		Debit($)	Credit($)
Material	(10000*0.25)	2500
Direct Material Price var			800
Accounts Payable			1700
WIP		3120
Direct Material Efficiency var			620
Material			2500
Manufacture Wages	(203000*0.14)	28420
Direct labour Price Var		6090
Wages payable			34510
WIP Inventory		26,208
Direct Labour Efficiency var		2,212
Manufacture Wages			28420