Danshuiplantno.2 Case Solution
Improvement is required which is important in Danshui Plant 2, which will assistin decreasing the unfavorable variance and getting favorable variances. Breakeven has been determined to reproduce the number of units that should be delivered forthe protection of the cost.Moreover, it is important to determine a flexible budget to evaluate like and like units and volumes.
The manager(Wentao Chen) of Danshui Plant No.2 in the location of southern China, was nervous about the performance of the processing plant that was producing 20000 smaller amount of iPhones than planned and budgeted. The Danshui Plant has settled upon an agreement to make 2.4 Million iPhones within the time span of one year (William Bruns, 2012). Consequently, a standard budget has been organized which is split similarly for more than a year to follow the performance of the actual production & to analyze variance verses standard budget.
The time period from June 2010 to August 2010; was a disturbing time being faced by Danshui Plant No.2, as it was unable to meet its objective of manufacturing, which was caused by the significant absence of absence skilled labor,due to which the benefit of the agreement was exposed.
In Southern China, Danshui Plant No. 2 has a one-year contract with Apple Inc. to manufacture 2.4 million iPhones.In the initial three months of the agreement; the plant wasn’t able to produce as many phones as it had estimated, which is a functional loss. The plant manager should examine the budget &set up an outline of the monthly activities to help recognize the bases of performance issues.The plant has experienced issues in recruiting sufficient laborers instead of increasing their wages by more than 30%.Moreover, the assembly process for an iPhone was difficult with less labors as its 140 stages included more than 100 parts. The plant manager reflects whether or not a flexible budget would be more valuable for revealing issues than the static budget at present being utilized. Students should perform break-even and flexible budget analyses and calculate the price and usage variances as they study answers for the plant’s issues with the iPhone’s contract. This case, which investigates the difficulties of outsourcing producing, can be utilized as an introduction to the managerial accounting.
. (William Bruns, 2012)
As per Appendix 1,for Using the 200,000 units of production;the total expected cost per unit is almost $205.70 (Total Cost divided by the Total Unit) per iPhone and on the hand of others, the actual cost/unit related to shipping and production is almost $211.93 (Total Cost divided by the Total Unit) per iPhone by the using of 180,000 actual units of production and shipping.
By acquiring account of the flexible budget, which is based upon 180,000 iPhone 4’s;the creation of some favorable and unfavorable variances could be made possible through creating the use of the costs for August. However, it is apparent that the variance that has been resulting based on the variable costs is almost $10,997 and it is favorable.
Furthermore, the variance connected to the labor cost is unfavorable, which is contained in the Assembly and packaging and as well as in the shipping costs. However, as per the flexible budget; the variance-based upon the fixed costs is almost $7,000, which is unfavorable. Apart from that, the variance related to the total costs is almost $10,258, which is favorable.Conclusively, the variance-based upon the net income is $11,962, which is an unfavorable variance………………….
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