Danshui Plant No.2 is a contract manufacturer locating in southern China and was assembles electronic products for companies wishing to save labor costs and they are using semiskilled labor for less than 1 dollar an hour. In August 2010, Danshui Plant No.2 in southern China has a 1 year contract in the period between 1 June 2010 and 31 May 2011 with Apple incorporation to assemble the Apple iPhone 4. Based on the contract, Danshui need to assemble 2.4 million iPhones within 1 year. However, Wentao Chen, manager of Danshui Plant No.2 was anxious about the plant is not able to assemble 2.4 million as their expected and is operating at a loss when the third month of the contract. Their current production was only 180,000 units per months compared to their planned monthly budget is 200,000 units. Therefore, manager was called the plant controller to analyze the budget and request a summary of monthly operations for August as soon after the end of the month as possible in order to identify the source of performance problem.
In the contract between Apple and Danshui Plant No.2, Danshui need to assemble 2.4 million iPhone within 1 year. This means that Danshui need to produce 200,000 units iPhone 4 per month but now in the third month of the contract they only produce 180,000 per month. Therefore, there are unable to assemble the...
...Danshui Plant No.2
Danshui assembling computer hard drives on a contract that was fulfilled at the end of May 2010, although the assembly hard drives was different with assembly of Iphone, Danshui was confident that its workers would adapt to the new assembly tasks and that it could hire and train the additional workers as needed. But in fact, Danshui didn’t manage employee property. The workers showed low efficiency in assembly Iphone with produced lower quantity than budgeted which is 180,000 units instead of 200,000 units. Other than that, Danshui couldn’t hire enough qualified labor to get production up to 200,000 units even though they raised wages by 30% because of Foxconn starting pay by 35% to the labors. In addition, Danshui operation department keep having flash memories damage problem, there were around 1,000 flash memories damage in August. It’s shown that Danshui’s labors are not enough skill to assembly Iphone.
We suggest that Wentao Chen could organize more training program for labors to solve the problem of damage of flash memories because of labors might lack of skill in assembly Iphone since they are more familiar in assembly computer hard drive before on contract with Apple. In order to improve the skill of labor in assembly Iphone so that will be decrease the number of damage of flash memories, and the decreasing of number of damage will be decrease the cost of...
A part from reading the Danshui Plant No.2 case, we can see that there is no enough information to evaluate the performance of the pant for the first three contracts to assembly Apple iPhone 4.
Analysis of the issue
To get a clear picture a flexible budget was prepared for the month end of August 2010. (Shown in the table below)
From the flexible that is prepared it can seen the performance of Danshui Plant NO.2 is not good enough as what it suppose to be. The budget show that Danshui has unfavorable variance in the assembly the flash memory part, variable tools and supplies, assembly and packing, shipping nad the last one on the supervision.
As for the flash memory it has been stated that Samsung had raised the price by $2.00 which had been cover by the Apple as their neutralized the profit which supposedly to give a favorable variance. But for the budget it can seen that the flash memory is showing an unfavorable variance. This is due to lack of skills during the installation the labour which had lead wastage as they need to replace the damage flash memory with the new one. The replacement of the flash memory due wastage had increased the cost that is expected which had lead to unfavorable variance.
Variable supplies and tools show an unfavorable variance has it has connection with installation of parts in the iPhone 4 especially on the flash memory installation part. .so when the labour done a wastage or...
DANSHUI Plant No.2 is located in southern China was a contract manufacturer that assembled electronic products for companies wishing to save labor costs. DANSHUI was getting a one-year contract with apple Inc. to assemble 2.4 million iPhones. It was very anxious when in the first three months of the contract, the plant is unable to be assembled as many as the expected and its operating at a loss.
The plant has had difficulty hiring enough workers despite raising wages to 35%. In addition, the process of assembling is complex and required almost entirely based on handwork by 325 workers, with 140 steps involving 100 components during 5 days. The DANSHUI controller considers preparing a “flexible budget” whether it is more useful to help them identify the misinterpreting their performance. Li also must analyze the currently static budget have been used and prepare a summary of monthly operations to identify what goes wrong in their operations that contribute to the performance problems.
If DANSHUI not analyzed the sources of problem and find the alternatives ways, it will contribute to disability in performing the contract and in the long term will lead to inefficiency of controlling the cost of materials, labor and overhead. This is in order to provide incentive to control all costs whether caused by use waste, damage theft or inefficiencies.
DANSHUI Plant has...
ACCOUNTING FOR BUSINESS DECISION MAKING
DANSHUI CASE STUDY
DR. SULAIMAN ARIS
MUHAMMAD ASHRAF BIN LISMAN (MBS141031)
KHAIRUL IKHSAN BIN SELAMAT (MR 121159)
ROHESWARAN GANEASON (MR 131107)
9TH MAY 2015
Questions: Danshui Plant No. 2
1. Using budget data, how many Apple iPhone 4’s would have to have been completed for Danshui Plant No. 2 to break even?
Variable Costs = Material Cost + Labor Cost + Shipping Cost = 187.89+13.11+1.06 = 202.06 / Unit
Fixed Costs = 729,000 / Month
Price = 41,240,000 / 200,000 = 206.2
Contribution Margin = 206.2-202.6 = 4.14 / Unit
When it comes to the break even,
Contribution margin * Unit(BE) = Fixed Costs.
Unit(BE) = 729,000 / 4.14 = 176,086.96，
So the break even for Danshui is 176,087.
The calculations performed, specifies that based on the budget figures the target monthly production required to meet a breakeven point for the contract is 176,087 units. For the purpose of reaching a breakeven level, DC have to meet its monthly budgeted fixed cost of $729,000 in addition to the variable charges attached to production of 176,087 units. Breakeven has been calculated based on $206.2 budgeted sales price (per unit) and $202.06 budgeted variable cost per unit
2. Using budget data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocated to planned production? What was...
...breakeven sales for Apple iPhone 4 3
3) Using the budget Data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocate to planned production? What was the actual cost per unit of production and shipping? 3
4) State the differences between a static budget and a flexible budget. Prepare Flexible budget for 160,000 iPhone 4’s 4
5) Prepare Flexible budget for 180,000 iPhone 4’s and calculate flexible budget variances using actual costs for August. 5
6) Give your suggestions on some strategies or decisions that Wentao Chen should consider in trying to solve the problems with the Apple iPhone 4 contract in the next nine months? How would theses change the cost and profitability of Danshui Plant No. 2 iPhone 4 contract? 6
Works Cited 7
1) Explain briefly contribution margin. How is it calculated?
Contribution margin is defined as how much of a company's revenues will be contributing (after covering the variable expenses) to the company's fixed expenses and net income. The contribution margin can be presented as
1) The total amount for the company
2) The amount for each product line
3) The amount for a single unit of product
4) As a ratio or percentage of net sales
Total Variable Costs
Material Cost + Labor Cost + Shipping Cost
= 202.06 Per Unit
Total Fixed Costs
Factory rent + Machine Depreciation +Utility fees and taxes+ Supervision...
DANSHUI PLANT NO.2
Background: Danshui was a contract manufacturer assembling electronic products in southern China. There were many manufacturers like Danshui in China assembling parts for the companies wishing to save labor costs. Apple contracted with Danshui to assemble 2.4 million iPhones in Plant No.2 with the expected high demand of this product in 2010. As a profit center, Plant No.2 was credited for each iPhone produced and shipped. The process of assembling was complex and required almost entirely based on handwork for more than 100 components. Danshui was confident of its workers to adapt the new tasks and extra workers could be hired and trained as needed. The iPhone 4 was the most successful product of Apple as more than 1.7 million units were sold in the first 3 days they were launched. However, the plant was operating at a loss because of the underproduction. Consequently, the controller of this plant considered preparing the new budget showing using a flexible budget system to identify what went wrong in their operations that contribute to the performance problems.
Problems and issues: The plant has 2 big problems in terms of budgeting system and labor force. Firstly, they were in unfavorable performance by using standard budgeting system. They were unable to meet the Apple contract, which was shortage 10% from the 200,000 targeted units, resulting in the loss of $672,000 rather...