Question

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 GroovyGroovy ​Bikes? Explain why or why not.
4.	Should Michael LaChutLaChut​'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 StanleyStanley 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 GroovyGroovy ​Bikes' decision to buy a lower quality of titanium from the online​ marketplace?

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 LaChut​, 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.

Groovy 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	800
	Titanium purchased	8,400	lb. for $159,600
	Titanium used in production	6,900	lb

Answer 1

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