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2 0.5 pts James is a purchasing manager of Easy Chairs Pty Ltd, a business that manufactures chairs. He is responsible for sourcing all the
2 0.5 pts James is a purchasing manager of Easy Chairs Pty Ltd, a business that manufactures chairs. He is responsible for sourcing all the required materials for the business from its network of suppliers. His bonus is tied to the materials price variance calculated at the end of the year. In the past year, James managed to achieve a favourable materials price variance as the actual price per unit of materials that was paid by Easy was lower than the budgeted (or standard) price per unit of materials. However the company's materials efficiency variance was very large and unfavourable due to inferior quality of materials purchased. Which of the following statements is/are likely to be true? 1. The favourable materials price variance and the unfavourable materials efficiency variance are likely to be related to each other. In other words, the actions that led to a favourable price variance may have contributed to the unfavourable efficiency variance. 2. James would have achieved a larger favourable materials price variance in the past year if he purchased a larger amount of materials holding all else constant (i.e., at the same actual price per unit of materials that was lower than the budgeted price per unit). 3. James's bonus formula would incentivise him to purchase the highest quality materials for the company. Statement 1 only Statement 2 only Statement 3 only Statement 1 and 2 only Statement 1, 2 and 3
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