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Katharine Juda is the owner of Better Bikes, a company that produces high qualitycross-country bicycles. Better Bikes participates in a supply chain that consists ofsuppliers, manufacturers,distributors, and elite bicycle shops. For several years Better Bikes has purchased titanium from suppliers in the supply chain. Better 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 thisyear, Better Bikes hired Michael Berkner, a recent graduate from StateUniversity, as purchasing manager. Michael believed that he could reduce costs if he purchased titanium from an online marketplace at a lower price.

Better Bikes established the following standards based upon the company's experience with their previous suppliers. The standards are asfollows:

Cost of titanium $19 per pound

Titanium used per bicycle 8 lbs.

Actual results for the first month using the online supplier of titanium are asfollows:

Bicycles produced 700

Titanium purchased 7,100 lb. for $127,800

Titanium used in production 6,100 lb.

Requirements:

1.Compute the direct materials price and efficiency variances.

2.What factors can explain the variances identified in requirement1? Could any other variances be affected?

3.Was switching suppliers a good idea for Better Bikes? Explain why or why not.

4.Should Michael Berkner's performance evaluation be based solely on pricevariances? Should the productionmanager's evaluation be based solely on efficiencyvariances? Why is it important for Katharine Juda to understand the causes of a variance before she evaluatesperformance?

5.Other than performanceevaluation, what reasons are there for calculating variances?

6.What future problems could result from Better Bikes' decision to buy a lower quality of titanium from the onlinemarketplace?

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