Katharine Johnson is the owner of Best Bakes, a company that produces high-quali
ID: 2561325 • Letter: K
Question
Katharine Johnson is the owner of Best Bakes, a company that produces high-quality cross-country bicycles. Best Bikes participates in a supply chain that consists of suppliers, manufacturens, distributors, and elite bicyde 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 bicydle. Earler this year, Best Bikes hired Michael Bentfield, a recent graduate from State University, as purchasing manager. Michael beäieved 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 $18 per pound Cost of titanium Titanium used per bicycle 8 lbs. Actual results for the first month using the online supplier of tita are as follows Bicycles produced Titanium purchased Titanium used in production 4,700 lb. s nium 400 5,200 lb. for $88,400 Required 1. Compute the direct materials price and efficiency variances. 2. What factors can esplain the variances identified in requirement 17 Could any other variances be affected? & Was switching suppliers a good ides for Best Bikes? ExplainExplanation / Answer
1.
2. The favorable price variance is due to the lower price offered by the online supplier. However, the unfavorable efficiency variance denotes that the quantity used is much higher than the standard quantity which could be due to the inferior quality of the titanium supplied at the lower price.
The labor and overhead variances also could be adversely affected due to rework, additional purchasing costs, etc.
3. As a result of switching suppliers, though the price obtained is lower resulting in a favorable price variance, due to inferior quality of material, quantity used is much higher resulting in an unfavorable efficiency variance and also an unfavorable total direct materials variance. Thus, it can be concluded that switching suppliers was not a good idea for Best Bikes.
Actual Cost Standard Cost AQ x AP AQ x SP SQ x SP 5200 x 17 5200 x 18 3200 x 18 88400 93600 57600Related Questions
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