Reference no: EM132510186

Molly Swift is the owner of Swift Bikes, a company that produces high-quality cross-country bicycles. Swift Bikes participates in a supply chain that consists of suppliers, manufacturers, distributors, and elite bicycle shops. For several years, Swift has purchased titanium from an established set of suppliers in the supply chain. Swift 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, Molly hired Alan Morrison, a recent graduate from WSU, as purchasing manager. Alan believed that he could reduce costs if he purchased titanium from an online marketplace at a lower price.

Swift established the following standards based on the company's experience with previous suppliers. The standards are as follows:

Cost of titanium $ 14 per pound

Titanium used per bicycle 8 pounds

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

Bicycles produced 950

Titanium purchased 8,800 pounds for $ 114,400

Titanium used in production 8,800 pounds

Question 1.) Calculate the direct materials price and quantity (efficiency) variances. Was switching suppliers a good idea for Swift Bikes? Explain why or why not.

Question 2.) What factors can explain the variances identified in question 1? Could any other variances be affected?

Question 3.) For each of the following, response to each sub-question.

a) Should Alan's (the purchasing manager) performance evaluation be based solely on price variances?

b) Should the production manager's evaluation be based solely on efficiency variances?

c) Why is it important for Molly Swift to understand the causes of a variance before she evaluates performance?