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Danshui Case Study

2268 words - 10 pages

Table of Contents

INTRODUCTION AND MAIN ISSUES 3
ANALYSIS 4
Qualitative 4
Quanitative 5
Breakeven Point (BEP) 5
Flexible Budget 6
Variances 7
RECOMMENDATION 8
Encourage, motivate, reward and recognize 8
Cellular Manufacturing System 8
Implement new accounting method 9
Extend the contract 9
ACTION PLAN 10
REFERENCES 12






INTRODUCTION AND MAIN ISSUES

Danshui was a contract manufacturer that assembled electronic products for companies wishing to save labour costs by locating in southern China. Because of high demand for iPhone 4, Apple had contracted with Danshui to assemble iPhone in Plant No. 2. The contract need Danshui to assemble 2.4 ...view middle of the document...

2, which had been assembling computer hard drives. Although the assembly of hard drives was different than assembly of iPhones, Danshui was confident that its workers would adapt to the new assembly tasks and could hire and train the additional workers as needed. The assembly process at Danshui Plant No.2 was almost entirely based on handwork by workers. There were about 140 steps in the assembly process for an iPhone 4 and each phone entirely based on handwork by workers. Because of iphone 4 have more than 100 components to assemble. The workers require focusing on one or more task in a short period of time as each phone move along as assembly line toward completion.
Based on a preliminary report on August operations, the revenue was below budget, material usage seems goods and labour costs were above budget. The budget was $100,000 but they lost almost $672,000. The reasons of the loss may be that unable to produce 200,000 iPhone 4 units in any of the three months. Beside that’s, the most obstacle is hiring enough qualified labour to get production up to 200,000 units per months because they cannot find people to hire even though the wages almost 30% since July. In addition the company continue trouble with the flash drive that have to handle very carefully that can damaged easily when installation. So that Samsung take action by develop shield to prevent the damage but it raise the price of the flash drive $2.00 each starting in mid-June.

Quanitative

Breakeven Point (BEP)

BEP is the point where total income of sales equals total expenses. A breakeven point determines when an investment will generates a positive return.

Variable cost = $187.89 + $13.11 + $1.06
=$ 202.06 per unit
Fixed costs = $ 729,000 per month
Revenue = $ 41,240 / 200
= $ 206.2 per unit

BEP = fixed cost/ contribution margin

Contribution margin = $ 206.2 + 202.06
= $ 4.14 per unit
BEP = 729,000/4.14
= 176, 087 units

For Danshui, they need to produce 176, 087 units per month that are required to cover fixed costs of $ 729,000 and a contribution margin $ 4.14 per unit, with nothing left over for profit.
By using budgeted data, it can be computed that total expected cost per unit is $ 205.70. While actual cost per unit is relatively higher than expected cost per unit.

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

Flexible Budget
Danshui Plant No.2 |
|
| | | | | |
  |   |   | Monthly flexible budget | Actual | Variances |
  | | | 180,000 units | 180,000 units | |
  |   |   | $'000 | $'000 | |
Revenue | | | 37,116 | 37,476 | 360 F |
  | | |   |   |   |
Variable costs | |   |   |   |
Materials : | |   |   |   |
Flash memory | | 4,860 | 5,249 | 389 U |
Application process | | 1,935 | 1,935 | ─ |
Chips—phone | | 2,529 | 2,529 | ─ |
Gyroscope |...

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