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 59,800 coffee mugs per month:

Actual cost and production information for July 2014 follow:
a. Actual production and sales were 62,500 coffee mugs.
b. Actual direct materials usage was 10,000 lbs. at an actual cost of $ 0.17 per lb.
c. Actual direct labor usage of 198,000 minutes at a cost of $ 25,740.
d. Actual overhead cost was $ 8,500 variable and $ 32,100 fixed.
e. Selling and administrative costs were $ 110,000.

Requirements
1. Compute the cost 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 variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
4. Journalize the actual manufacturing overhead and the applied manufacturing overhead. Journalize the movement of all production from Work- in- Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
5. McKnight intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decisionwise?

Transcribed Image Text:

Direct Materials (0.2 lbs. $0.25 per b) Direct Labor (3 minutes $0.11 per minute) Manufacturing Overhead: 5 005 0.33 Variable (3 minutes@s0.06 per minute) $0.18 Fixed (3 minutes s0.15 per minute) 045 0.63 Total Cost Per Coffee Mug $ 1.01