Katharine Johnson is the owner of Best Bikes, a company that produces high-quality cross-country bicycles. Best Bikes participates in a sup- ply 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: $18 per pound 8 Ibs. Cost of titanium Titanium used per bicycle Actual results for the first month using the online supplier of titanium are as follows: Bicycles produced Titanium purchased Titanium used in production 400 5,200 lb. for $88,400 4,700 lb.

Katharine Johnson is the owner of Best Bikes, a company that produces high-quality cross-country bicycles. Best Bikes participates in a sup- ply 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: $18 per pound 8 Ibs. Cost of titanium Titanium used per bicycle Actual results for the first month using the online supplier of titanium are as follows: Bicycles produced Titanium purchased Titanium used in production 400 5,200 lb. for $88,400 4,700 lb.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

If a purchasing manager is able to buy direct materials required in the manufacturing of a product at a lower than ‘standard’ cost why may this result in an overall unfavorable total variance for DM’s.
f
What is a materials price variance? Describe this in your own words. Writing a formula is not a sufficient answer. Provide a real world example that would result in an unfavorable materials price variance
Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain your response. What if a company found that they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause(s) of this pattern of variances?
How frequently do you believe that firms should conduct variance analysis? Explain why?
What does the concept of ‘management by exception’ mean and what factors are considered when assessing the significance of a variance?
Which one of the following may account for an adverse labour efficiency variance? a. Using higher grade materials leading to lower wastage rates O b. Change in labour-market conditions between the setting of the standard and the actual event O c. Higher purchase cost of raw materials d. Using a higher grade of worker than was planned Oe. Poor supervision
What effect, if any, would you expect purchasing poor-quality materials to have on direct labour variances?
Comment on the statement “A favourable variance is always better than an adverse variance” by considering one behavioural issue involved.
At the beginning of the year, you estimated the following - Production - 75,000 units Raw Material - 270,000 pounds at a cost of $1,026,000 Direct Labor - 187,500 hours at a cost of $4,125,000 Variable Overhead - 135,000 machine hours at a cost of $567,000 Fixed Overhead - $900,000 At the end of year, the actual results were as follows - Production - 73,000 units Raw Material - 265,720 pounds purchased and used at a cost of $1,036,308 Direct Labor - 179,580 hours at a cost of $3,968,718 Variable Overhead - 133,590 machine hours at a cost of $558,406.20 Fixed Overhead - $891,000