Material-cost variances, use of variances for performance evaluation. Katharine Johnson is the owner of Best...
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Material-cost variances, use of variances for performance evaluation. Katharine Johnson is the owner of Best Bikes, a company that produces high-quality cross-country bicycles. Best Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years Best Bikes has purchased titanium from suppliers in the supply chain. Best 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, Best Bikes hired Michael Bentfield 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. Best Bikes established the following standards based upon the company's experience with previous suppliers. The standards are as follows: Cost of titanium $18 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 400 Titanium purchased 5,200 lb. for $88,400 Titanium used in production 4,700 lb. Required: 1. Compute the direct materials price and quantity/efficiency variances
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