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Katharine Stanley is the owner of Groovy Bikes, a company that produces high quality cross-country bicycles. Groovy Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years Groovy Bikes has purchased titanium from suppliers in the supply chain. Groovy 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, Groovy Bikes hired Michael Smith, 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. Actual input X Budgeted price = Cost Direct materials (purchases) 8,400 X 18 = 151,200 Direct materials (usage) 7,400 18 $ 133,200 Next determine the formula and calculate the cost for the flexible budget (1) Budgeted input for actual output X (2) Budgeted price = Flexible budget cost Direct materials 18 = Now compute the price and efficiency variances for direct materials. Label each variance as favorable (F) or unfavorable (U). Price Efficiency variances variances Direct materials (3)F (4) 0 Requirement 2. What factors can explain the variances identified in requirement 1? Could any other variances be affected? price The (5) Variance is due to the difference between the standard price based on the previous suppliers and the actual price paid through the online marketplace. The (6) efficiency) could be due to several factors including inexperienced varience workers, lower quality product, and machine malfunctions. The (7) Labor variance could be affected if the lower quality titanium caused the workers to use more time. efficiency Requirement 3. Was switching suppliers a good idea for Groovy Bikes? Explain why or why not. Was Switching suppliers (8) mal a good idea. increase The (9) decrease | in the cost of titanuim was outweighed by the (10) material usage. In addition, the unfavorable does recognize the total impact of the lower quality titanium because (11) efficiency variance (12) not only pounds were used. Groovy Bikes could expect the pounds to result in an remaining additional ( 13 ) unfavorable variance. efficiency Requirement 4. Should Michael Smith'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