Katharine Preston is the owner of Grand Bikes, a company that produces high quality cross-country bicycles. Grand Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years Grand Bikes has purchased titanium from suppliers in the supply chain. Grand Bikes uses titanium for the bicycle frames because it is stronger and lighter than other metals and therefore increases the quality of the bicycle. Earlier this year, Grand Bikes hired Michael Monette, a recent graduate from State University, as purchasing manager. Michael believed that he could reduce costs if he purchased titanium from an online marketplace at a lower price. Requirement 1. Compute the direct materials price and efficiency variances. Data table Let's begin by calculating the cost for the actual input at the budgeted price. Grand Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are as follows: Cost of titanium $24 per pound Titanium used per bicycle 8lbs. Requirements Actual results for the first month using the online supplier of titanium are as follows: Bicycles produced 400 1. Compute the direct materials price and efficiency variances. 2. What factors can explain the variances identified in requirement 1 ? Could any other variances be affected? 3. Was switching suppliers a good idea for Grand Bikes? Explain why or why not. 4. Should Michael Monette's performance evaluation be based solely on price variances? Should the production manager's evaluation be based solely on efficiency variances? Why is it important for Katharine Preston to understand the causes of a variance before she evaluates performance? 5. Other than performance evaluation, what reasons are there for calculating variances? 6. What future problems could result from Grand Bikes' decision to buy a lower quality of titanium from the online marketplace? Katharine Preston is the owner of Grand Bikes, a company that produces high quality cross-country bicycles. Grand Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years Grand Bikes has purchased titanium from suppliers in the supply chain. Grand Bikes uses titanium for the bicycle frames because it is stronger and lighter than other metals and therefore increases the quality of the bicycle. Earlier this year, Grand Bikes hired Michael Monette, a recent graduate from State University, as purchasing manager. Michael believed that he could reduce costs if he purchased titanium from an online marketplace at a lower price. Requirement 1. Compute the direct materials price and efficiency variances. Data table Let's begin by calculating the cost for the actual input at the budgeted price. Grand Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are as follows: Cost of titanium $24 per pound Titanium used per bicycle 8lbs. Requirements Actual results for the first month using the online supplier of titanium are as follows: Bicycles produced 400 1. Compute the direct materials price and efficiency variances. 2. What factors can explain the variances identified in requirement 1 ? Could any other variances be affected? 3. Was switching suppliers a good idea for Grand Bikes? Explain why or why not. 4. Should Michael Monette's performance evaluation be based solely on price variances? Should the production manager's evaluation be based solely on efficiency variances? Why is it important for Katharine Preston to understand the causes of a variance before she evaluates performance? 5. Other than performance evaluation, what reasons are there for calculating variances? 6. What future problems could result from Grand Bikes' decision to buy a lower quality of titanium from the online marketplace
