Danshui Plant No.2 Case Study Danshui Plant No.2 Case Study Yuli Tang Rui Zhang Due Date: April 9, 2013 1. As we can see from the Exhibit 1, 176,087 Apple iPhone 4’s would have to have been completed for Danshui Plant No.2 to break even. 2. The total expected cost per unit was $205.7 per unit and the actual cost per unit was $211.93 per unit. See Exhibit 2. 3 & 4. The data is showing in the Exhibit 3 & 4. 5. From the data of question 3, the variance of revenue is favorable because Apple increased price of flash memory by $2. However the company didn’t gain profits from the revenue due to the increased price of flash memory provided by Samsung. The variance of flash memory is unfavorable because of two reasons: first reason is the price of each unit raised $2; the second reason is the company damaged 1,000 units of flash memory. So company used more flash memories than expected. The variance of 8 other chips is favorable, we cannot say the amount of chips decreased, so it should be the price of chips went down. The variance of supplies and tools is unfavorable. We think there are two reasons: company used the supplies and tools less efficient which means used more of supplies and tools, or company spend more money on purchase supplies and tools. The variance of labor is unfavorable, due to the wages of labor increased and working hours also increased, it was inefficient. The supervision is unfavorable because of the salary of supervisor increased. In conclusion, the actual net income is negative because company spends more money or use more on flash memories, supplies and tools and assembly and packing. In addition, company didn’t gain more revenue so that the revenue can’t cover the total cost. The company did a good job on
other costs that were not change, such as Application Process and Gyroscope. The material price variance is unfavorable, because the actual price is increased by $2 comparing with the standard price. The material usage variance is unfavorable too, because flash memories were damaged by 1000. Hence, the total variance of flash memories was unfavorable. The variance of labor is unfavorable, because the wages of labor increased and working hours increased. But the productivity didn’t increase; the efficient of production was low. 6. The company has three main problems: the first problem is that they may unable to complete 200,000 IPhone 4 units in any of the three months they have been working on the contract. The second problem is they cannot hire more workers. The third problem is the company have problem with the Samsung flash memory installation. We have some suggestions for the company to solve these problems. Firstly, Danshui Company should improve their salary policy. We recommend company should motivate workers to produce more efficiently, for instance, they can set a basic salary for workers and offer them bonus if workers complete target. Secondly, the company should provide professional training for labors. So they can work more efficiently. After workers becoming more professional, the company cannot only use less labor hours, but also save more materials. A third suggestion is that Danshui Company should also improve the quality of production supervision. They should hire a more professional supervisor who is familiar with the production process and is able to build a good relationship with labors, so they can work more efficiently and the company can even save more money on materials. Appendix | Monthly Budget | Actual | Variance | Number of Unites | 180,000 | 180,000 | 0 | Revenue | 37,116 | 37,476 | 360 F | Variable cost:Materials | Flash memory | 4,860 | 5,249 | 389 U |
Application Process | 1,935 | 1,935 | 0 | Chips-phone | 2,529 | 2,529 | 0 | Gyroscope | 468 | 468 | 0 | 8 other chips | 12,771 | 12,643 | 128 F | Variable supplies and tools | 11,257.20 | 11,305 | 47.80 U | Assembly and packing | 2,359.80 | 3,092 | 732.20 U | Shipping | 190.80 | 191 | 0.2 U | Total variable cost | 36,370.80 | 37,412 | 1041.20 U | Fixed cost: | Factory rent | 400 | 400 | 0 | Machine depreciation | 150 | 150 | 0 | Utility fee and taxes | 52 | 52 | 0 | Supervision | 127 | 134 | 7 U | Total fixed cost | 729 | 736 | 7 U | Total cost | 37,099.8 | 38,148 | 1,048.2 U | Net Income | 16.2 | (672) | 688.2 U | (Thousands of U.S. Dollars/ Units) Exhibit 1: Revenue | 41,240/200=$206.2 per unit | Variable Costs | 187.89+13.11+1.06=$202.06 per unit | Contribution Margin | 206.2−202.06=$4.14 per unit | Fixed cost | $729,000 per month |
Break-even | 729,000/4.14=176,087 units | Exhibit 2: Total Expected Cost per unit= 41,140,000/200,000=$205.7 per unit Actual Cost per unit= 38,148,000/180,000=$211.93 per unit Exhibit 3: Exhibit 4: 4.1 Actual Price: 5,249,000/181,000=$29 Standard Price: $27 Actual Quantity: 181,000 units Standard Quantity: 180,000 units Price Variances for Flash Memories= (Actual Price – Standard Price) × Actual Quantity = (29–27)×181,000 = $362,000 Unfavorable Usage Variances for Flash Memories= (Actual Quantity – Standard Quantity) × Standard Price = (181,000–180,000)×27 = $27,000 Unfavorable 4.2 Standard Labor Rate: $11.8/hour Actual labor rate: $15.36/hour Standard hours: 2,359,800 /11.8=199,983
Actual hours: 3,092,000/15.36= 201,302 Labor Rate Variance: (15.36-11.8)*201,302=$716,653.12 Unfavorable Efficiency Variance: (201,302-199,983)*11.8=$15,564.2 Unfavorable
