I looked on Google for moustache stencils to copy, I also marked these out with a felt tip before painting.
I bought the enamel paint from Homebase for about a pound. Its toxic free and suitable for children. The mug is also from Homebase and cost 99p.
The idea for the mug came from a mug seen in Urban Outfitters: http://www.urbanoutfitters.co.uk/gifts+home/mugs/icat/mugs/&bklist=icat,5,shop,home,homecategories,mugs
There are plenty of other mugs there which can easily be reproduced at home.