...Introduction 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. Problem statement 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 iPhone 4 within 1 year this may because of they are lack of qualified labor. Danshui Plant No.2 are employs those semiskilled...
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...DANSHUI PLANT NO. 2 CONTENTS | PAGE | 1.0 Introduction | | 2.0 Main issue | | 3.0 Problem statement | | 4.0 Data Analysis 4.1 Breakeven analysis 4.2 Total cost variance analysis 4.3 Flexible budget performance analysis 4.4 Variance analysis | | 5.0 Strategies, interpretations, recommendations and justifications | | 6.0 Conclusion | | 7.0 References | | 1.0 INTRODUCTION Danshui Plant No. 2 in southern China has a one-year contract with Apple Inc. to assemble 2.4 million iPhones. In the first three months of the contract, the plant is unable to assemble as many phones as expected and is operating at a loss. The plant manager must analyze the budget and prepare a summary of monthly operations to help identify the source of performance problems. The plant has had difficulty hiring enough workers despite raising wages over 30%. In addition, the assembly process for an iPhone is complicated, with 140 steps involving over 100 components. The plant manager considers whether a flexible budget would be more useful for uncovering problems than the static budget currently being used. Wentao Chen, manager of Danshui was anxious upon reviewing the monthly operation’s performance for August as in the third month of the contract, production was only about 180,000 units. Meanwhile, Jianye Ma, the plant controller requested a summary of monthly operations for August as soon after the end of the month as possible. 2.0 MAIN ISSUE Danshui Plant manager Wentao...
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...MAIN ISSUE 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 reckless job during the installation of flash memory...
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...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. Problem statement 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 iPhone 4 within 1 year this may because of they are lack of qualified labor. Danshui Plant No.2 are employs those semiskilled labor and...
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...Danshui Plant No.2 The following case focuses on Danshui, a contract manufacturer that assembled electronic products. Danshui is currently in the third of a 12 months’ contract to assemble 2.4 million units of Apple’s iPhone 4. Monthly production target for Danshui is 200,000 units but three months’ study reflects that Danshui may not meet this target in 12 months and would also overrun the cost barrier thus landing in an unprofitable situation. Plant controller, Jianye Ma presented her analysis for August production to the plant manager, Wentao Chen. According to this report, the main difficult the plant is facing is being able to hire enough people to get the production to the 200000 units per month budgeted, despite having increased wages by a 30%. Questions 1. A. Total expected Cost – 41,140,000$ for 200,000 units ------------------------------------------------- Cost per unit – 205.70$ B. Actual Cost – 3,8148,000$ for 180,000 units ------------------------------------------------- Cost per unit – 211.91$ 2. The flexible budget variances can be seen in Appendix1. According to the results, there is an overall unfavourable variance of 1048.2$. this means, that even if production has been 180,000 instead of 200,000, there is still a variance NOT EXPLAINED by the reduction in volume. The colours in appendix one represent whether the impact of the variance is positive (green) or negative (red). It can be seen, that assembly and packaging represents the highest...
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...MAIN ISSUE 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 reckless job during the installation of flash memory or any...
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...The Australasian Accounting Business & Finance Journal, February 2007 Gaffikin: Accounting Research and Theory: the age of neo-empiricism. Vol. 1, No.1.pp. 1-19. Accounting Research and Theory: The age of neo-empiricism Michael Gaffikin, School of Accounting & Finance, University of Wollongong ABSTRACT The theorising in accounting prior to 1970 was rejected as not providing sufficiently general theories. Informed by theories in economics and finance (and other disciplines such as psychology) and with the aid of computers, attempts to theorise accounting took a new direction. Large data collection and analysis emphasized a purportedly more systematic empirical approach to developing theory. Key words: accounting; neo-empiricism; capital markets research; behavioural finance; efficient markets hypothesis; positive accounting theory INTRODUCTION Around 1970 there was a dramatic change in the approach to accounting research. Several reasons have been suggested for this change in methodological direction by those reviewing the development of accounting thought. To many, a major distinction is a change in direction away from attempts to prescribe a theory of accounting to developing theory from a description of extant practices. To advocates of the latter, previous attempts to develop a theory of accounting were futile as there could never be agreement over many of the inputs into a theory such as the postulates, principles but most specifically the assumptions. Although a...
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...Danshui Plant No.2 Charles Fiorentino, Elaine Shuyi Li, Sophie Browne, Travis Cole Problem 1. Breakeven Volume: Price/Unit = Sales/# units = 41,240,000/200,000 = 206.2 Variable Costs/Unit = 40,411,000/200,000 = 202.055 Contribution Margin/Unit = 206.2 - 202.055 = 4.145 Break-even = Fixed Costs/ (CM/unit) = 729,000/4.145 = 175,875 units Problem 2. Planned shipping cost per unit: 41,140,000/200000= $205.7 Actual shipping cost per unit: 38,148,000/ 180,000= $211.93 Problem 3: Exhibit 1 Static Budget Actual 200,000 Number of Units Flexible Budget 180,000 180,000 $41,240,00 0 $37,116,000 $37,476,0 00 Variance Per Unit Sales Revenue $206.2 37,577,000 33,820,200 $360,000 F Variable Manuf. Costs 187.89 308,800 U Labor 13.11 2,622,000 2,359,800 3,092,000 732,200 U Variable G, S & A 1.06 212,000 190,800 191,000 200 U Contribution Margin 829,000 745,200 64,000 681,200 U Fixed Costs 729,000 729,000 736,000 7,000 U Net Income 100,000 16,200 -672,000 688,200 U 34,129,00 0 Problem 4. Exhibit 2 Standard Actual Price Variance Flash Memories Price $27.00 $29.16 $388,800 U Flash Memories Usage 200,000 180,000 540,000 F Labor Rate $13.11 $17.18 $732,600 U Labor Usage 200,000 180,000 $262,200 F Overhead $729,000 $736,000 $7,000 U ...
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...Revised Fall 2012 CHAPTER 8 FLEXIBLE BUDGETS, STANDARD COSTS, AND VARIANCE ANALYSIS Key Terms and Concepts to Know Static or Planning Budgets Used for planning purposes Prepared at the beginning of the period Based on one projected level of activity Flexible Budgets Used for control purposes Prepared at the end of the period “Flexed” to accommodate actual level of production Use costs (variable and fixed) and revenue formulas from static budgets Revenue Variance Difference between how much the revenue should have been at the actual level of activity and the actual revenue for the period. Favorable revenue variance occurs when the revenue is greater than expected at the actual level of activity for the period. Unfavorable revenue variance occurs when the revenue is less than expected at the actual level of activity for the period. Spending Variance Difference between how much anexpense should have been at the actual level of activity and the actual amount of expense incurred. Favorable spending variance occurs when the cost is less than expected at the actual level of activity for the period. Unfavorable spending variance occurs when the cost is greater than expectedat the actual level of activity for the period. Page 1 of 26 Revised Fall 2012 Standards: Standards are benchmarks or “norms” for measuring performance. Standards relate to the quantity and costs of inputs used in manufacturing goods or providing services. Price Standards...
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...Title: Danshui Plant No. 2 ------------------------------------------------- Authors: William Bruns, Julie H. Hertenstein, Kelvin Liu INTRODUCTION Danshui Plant No. 2 in southern China has a one-year contract with Apple Inc. to assemble 2.4 million iPhones. In the first three months of the contract, the plant is unable to assemble as many phones as expected and is operating at a loss. The plant manager must analyze the budget and prepare a summary of monthly operations to help identify the source of performance problems. ISSUES/ PROBLEMS 1. Danshui Plant No. 2 was not able to fulfill the demand for the contract up to 3rd month. 2. Workers need to be multitasking as they need to focus on one or more task in a short period of time. 3. The assembly process which solely depends on the handwork of workers may cause human errors. 4. The assemble process for an iPhone is complicated. 5. Demand of iPhone 4 is higher than the supply in the market. 6. Revenue for August was below budget while labor cost was above budget. 7. Instead of having $100,000 profit, company had a loss of $672,000 due to unable to produce 200,000 units of iPhone 4 on time. 8. The plant face difficulty in finding enough people to match their production despite raising wages over 30% 9. Samsung flash memory was too fragile causes it can be damaged easily during installation process. 10. Current method of preparing budget may cause misinterpretation of the performance...
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...Apple Corporation released iPhone 4 on June 24, 2010 and sold more than 1.7 million units in the first three days. To prepare for the launch of the new product, Apple contracted with the Danshui Plant No. 2 to assemble the new iPhones. Danshui Plant No.2, a contract manufacturer in southern China that assembles electronic products for companies wishing to save on labor costs, received a one-year contract starting on June 1, 2010 with the Apple Corporation to assemble 2.4 million iPhone 4s. In the first three months of the contract it became obvious that the plant was unable to assemble the expected 200,000 iPhones per month and was operating at a loss. Although the plant is known for hiring semi-skilled workers, the new iPhone contract required a complex assembly process entirely based on handwork by 325 workers, with 140 steps involving 100 components during 5 days. To anticipate the need for qualified workers, Danshui had raised their factory wages by almost 30%. But even with the wage increase, Danshui was not able to hire enough qualified workers to assemble the complex new product. Another issue was that, based on original modeling, Danshui was actually operating at a loss and was unable to fill the expected 200,000 per month iPhone quota in the first three months. To begin analyzing the root causes for the shortfall, the controller had considered preparing a “flexible budget” to provide a more realistic comparison of the performance to the budget. If the plant...
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...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 million iPhone in the period between June 1, 2010 and May 31, 2011. Wentao Chen, manager of Danshui Plant No. 2 was worried because in the third month of the contract production was only 180,000 units per month. Suppose to produce 2.4 million iPhone its need 200,000 units per month. After preliminary budget has come out, the company loss of $672,000. The main issue of this case is the break contract between Danshui and Apple. The contract called Danshui to assemble 2.4 million in the period of one year, but Danshui only can produce 180,000 units per months. If Danshui still can produce that amount, it can’t reach 2.4 million in one year. This might happen because Danshui cannot find people to hire, even though they have raised wages by almost 30%. Another reason is they have problem with the Samsung flash memory installation. One thousand flash memories were damaged in August. Samsung is aware of this problem and has begun to install a shield to prevent the damage. However, it is just for prevention in the short time. Due to the contract has not been fulfilled, Danshui may be needed to pay back a lot of money for the contract and...
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...Solution to Danshui Case Danshui Plant No.2 1. 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. 2. Based on the data in Exhibit 3, Total expected cost / Unit = 41,140,000 / 200,000 = $205.7 / Unit Actual cost / Unit = 38,148,000/180,000 = $211.93 / Unit 3. Flexible Budget | Budget(180,000) | Actual(180,000) | Variance | 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 | 468 | 468 | | 8 other chips | 12,771 | 12,643 | 128 F | Variable supplies and tools | 11,257.2 | 11,305 | 47.8 U | Subtotal | 33,820,2 | 34,124 | 303.8 U | Labor | | | | Assembly and packaging | 2,359.8 | 3,092 | 732.2 U | Shipping | 190.8 | 191 | 0.2 U | Total variable costs | 36,730.8 | 37,412 | 1041.2 U | Fixed costs: | | | | Factory rent | 400 | 400 | | Machine depreciation | 150 | 150 | | Utility fee and taxes | 52 | 52 | | Supervision | 127 | 134 | 7 U | Total fixed costs | 729 | 736 | 7 U | Total costs | 37,099.8 | 38...
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...Question for 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: 187.89 + 13.11 + 1.06 = $202.06 per unit Fixed Costs: $729,000 per month Revenue: 41,240 / 200 = $206.2 per unit Contribution Margin = 206.2 - 202.06 = $4.14 per unit Break-even = 729,000 / 4.14 = 176,086.96 units Answer : 176,087 iPhones 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 the actual cost per unit of production and shipping? Total Expected Cost per unit: 41,140,000 / 200,000 = $205.7 per unit Actual Cost Per Unit: 38,148,000 / 180,000 = $211.93 per unit 3. Prepare a flexible budget for 180,000 iPhone 4’s and calculate flexible budget variance using actual cost for August. Flexible Budget Actual Variance Number of Units 180,000 180,000 - *Values in Thousands of Dollars ($) Revenue 37,116 37,476 360 F Variable Costs: Materials Flash memory 4,860 ...
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...Managerial Accounting Case #3 (Danshui Plant No. 2) – Instructions I would like to see all of your calculations as a part of your write-up (except for Question 3). For Q3, please attach any relevant tables as an appendix. Question 1: You’ll use the data provided in the first column of Exhibit 3 to calculate the break-even point (see chapter 3 lecture notes for details). Question 2: You’ll just compute the expected and actual total cost per unit. Question 3: Prepare a table with four columns: (1) flexible budget, (2) actual results, (3) variances, and (4) a column indicating whether a variance is favorable or unfavorable. Attach this table to the end of your write-up. Question 4: You’ll calculate the following: (1) the price and usage variance for the flash memory material cost, (2) the price and usage variance for the labor cost, and (3) the total variance for the overhead cost. Read the August Report (page 3) carefully. In this case, you don’t need the standard labor price information in order to calculate the labor price and usage variance. But, note that the standard labor price (or rate) is $0.92 per hour just in case you cannot figure out how to calculate the variances without using that information. Question 5: Think about the various cost variances (i.e., materials, labor, overhead) you calculated. Which one(s) should be the major concern for the manager? What are the causes of these variances (i.e., price variance or efficiency variance)? How can the manager...
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