A company’s purchasing manager bought 5,000 pounds of material for $5.50 per pound instead of the budgeted $6.00 per pound, resulting in a favorable variance of $2,500. The company has a policy of rewarding employees with 20% of any cost savings they generate. Before awarding a $500 bonus to the purchasing manager, what other variances would you look at to determine the total effect of the purchasing decision? Explain.
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