North Coast Surfers is a company that produces high-quality surf boards. North Coast Surfers participates in a supply chain that consists of suppliers, manufacturers, distributors and elite surf shops. North Coast Surfers uses carbon fibre for the surf boards because it is strong and light and therefore increases the quality of the surf boards. North Coast Surfers has recently hired Janet Jackson as purchasing manager. Janet believes that she could reduce costs if she purchased carbon fibre from an online marketplace at a lower price. North Coast Surfers has set up the following standards based upon their experience with their previous suppliers. The standards are:

Cost of carbon fibre$20 per kilogram

Carbon fibre used per surf board8kg

Actual results for the first month using the online supplier of carbon fibre are:

Surf boards produced500

Carbon fibre purchased6000kg for $108,000

Carbon fibre used in production5,000 kg

Required:

1. Calculate 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. Is switching suppliers a good idea for North Coast Surfers? Explain why or why not.
4. Should Janet Jackson's performance evaluation be based solely on price variance? Should the production manager's evaluation be based on efficiency variances? Why it is important for the management of North Coast Surfers to understand the causes of a variance before they evaluate performance? Explain.
5. Other than performance evaluation, what other reasons are there for calculating variances?
6. What future problems could result from North Coast Surfer's decision to buy a lower grade carbon fibre from the online marketplace?