Katharine McKnight is the owner of Action Bikes, a company that produces high quality cross-country bicycles Action Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elte bicycle shops. For several years Action Bikes has purchased tanium from suppliers in the supply chain Action Bikes uses ttanium for the bicycle trames because it is stronger and lighter than other metals and therefore increases the quality of the bicycle. Earlier this year, Action Bikes hired Michael Alderman, a recent graduate from State University, as purchasing manager Michael beleved that he could reduce costs if he purchased titanium from an online marketplace at a lower price (Click the icon to view the standard and actual information) Read the requirements Requirement 1. Compute the direct materials price and efficiency variances Let's begin by calculating the cost for the actual input at the budgeted price Actual input W Budgeted price Dract materials (purchases) Drect materials (usage) Show Transcribed Text Data table Cost Cost of titanium Titanium used per bicycle ( Action Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are as follows: Bicycles produced Titanium purchased Titanium used in production $20 per pound 8 lbs. Actual results for the first month using the online supplier of titanium are as follows: - 500 6,500 lb. for $117,000 5,000 lb. X
Katharine McKnight is the owner of Action Bikes, a company that produces high quality cross-country bicycles Action Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elte bicycle shops. For several years Action Bikes has purchased tanium from suppliers in the supply chain Action Bikes uses ttanium for the bicycle trames because it is stronger and lighter than other metals and therefore increases the quality of the bicycle. Earlier this year, Action Bikes hired Michael Alderman, a recent graduate from State University, as purchasing manager Michael beleved that he could reduce costs if he purchased titanium from an online marketplace at a lower price (Click the icon to view the standard and actual information) Read the requirements Requirement 1. Compute the direct materials price and efficiency variances Let's begin by calculating the cost for the actual input at the budgeted price Actual input W Budgeted price Dract materials (purchases) Drect materials (usage) Show Transcribed Text Data table Cost Cost of titanium Titanium used per bicycle ( Action Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are as follows: Bicycles produced Titanium purchased Titanium used in production $20 per pound 8 lbs. Actual results for the first month using the online supplier of titanium are as follows: - 500 6,500 lb. for $117,000 5,000 lb. X
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Requirements
1.
2.
3.
Was switching suppliers a good idea for Action Bikes? Explain why or why
not.
4.
Compute the direct materials price and efficiency variances.
What factors can explain the variances identified in requirement 1? Could
any other variances be affected?
5.
Should Michael Alderman'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 McKnight to
understand the causes of a variance before she evaluates performance?
Other than performance evaluation, what reasons are there for
calculating variances?
6. What future problems could result from Action Bikes' decision to buy a lower
quality of titanium from the online marketplace?
Print
Done
- X
-
Transcribed Image Text:Katharine McKnight is the owner of Action Bikes, a company that produces high quality cross-country bicycles Action Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors,
and elle bicycle shops. For several years Action Bikes has purchased tanium from suppliers in the supply chain Action Bikes uses stasium for the bicycle trames because it is stronger and lighter than other
metals and therefore increases the quality of the bicycle. Earlier this year, Action Bikes hired Michael Alderman, a recent graduate from State University, as purchasing manager Michael beleved that he could
reduce costs if he purchased titanium from an online marketplace at a lower price
(Click the icon to view the standard and actual information)
Read the requirements
Requirement 1. Compute the direct materials price and efficiency variances
Lef's begin by calculating the cost for the actual input at the budgeted price
Actual input
Budjeted price .
Deact materials (purchases)
Drect materials (usage)
Show Transcribed Text
Data table
Cost
Cost of titanium
Titanium used per bicycle
Action Bikes established the following standards based upon
the company's experience with their previous suppliers. The standards
are as follows:
Actual results for the first month using the online supplier of titanium
are as follows:
Bicycles produced
Titanium purchased
Titanium used in production
Print
$20 per pound
8 lbs.
500
6,500 lb. for $117,000
5,000 lb.
-
Done
X
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