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 4s 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 didnt 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 didnt gain more revenue so
that the revenue cant 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 didnt 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 | 206.2202.06=$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
= (2927)181,000
= $362,000 Unfavorable
Usage Variances for Flash Memories= (Actual Quantity Standard
Quantity) Standard Price
= (181,000180,000)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