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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
2. Using budget data, what was the total expected cost per unit ifall 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.
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= $362,000
Unfavourable Usage Variances for Flash Memories= (Actual Quantity – Standard Quantity) ×
Standard Price= (181,000–180,000) ×27 =27000
4. Estimate material price and usage for flash memories, labour rate and usage (efficiency)
Variances and the overhead spending variance for August.
The material rate variance is due to the increased price of Flash Memory chips by 2$ accounting for
$360 unfavorable material rate variance. But our unfavourable material efficiency variance of $29 U
in Flash Memory.
The labour rate variance of $708 is due to increase in wages by 30%. $24 unfavourable variance is
due our labour inefficiency. Our Overhead spending variance is $7 U due to increase in spending in
supervision
5. What are some strategies or decisions that went Chen should consider in trying to solve
the problems with the Apple iPhone 4 contract in the next nine months? How would these
change the costs and profitability of Danshui Plant No. 2 and the iPhone 4 contract?
As can be seen from the above analysis labor is the major reason why Danshui Plant no. 2 is not able
to reach its target of 200,000 iPhones in a month and also incurring a major loss. To increase
production and improve efficiency following strategies can be implemented:
A second, less viable, option can be to make a new plant in a relatively low cost location where there
is more unemployment thus reducing our labour costs. This not a viable option right now as we do
not have enough time to make a 2nd unit and start production there.