Katharine Stanley is the owner of Action Bikes, a company that produces high quality cross-country bicycles. Action Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years Action Bikes has purchased titanium from suppliers in the supply chain. Action 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, Action Bikes hired Michael Anderson, 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. (Click the icon to view the standard and actual information.) Read the requirements Requirement 1. Compute the direct materials price and efficiency variances. Let's begin by calculating the cost for the actual input at the budgeted price. Cost Actual input 95000 Budgeted price 100000 5000 Direct materials (purchases) Direct materials (usage) 100000 80000 20000 Requirements ria ced Dod BE118 00 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 Action Bikes? Explain why or why not 4. Should Michael Anderson'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 Stanley 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 Action Bikes' decision to buy a lower quality of titanium from the online marketplace? Print Done X Data table Action Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are as follows: Cost of titanium $20 per pound Titanium used per bicycle 8 lbs. Actual results for the first month using the online supplier of titanium are as follows: Bicycles produced 500 Titanium purchased 6,500 lb. for $123,500 Titanium used in production 5,000 lb. Print Done