Danshui Plant no. 2 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Danshui Plant no. 2 Case Study Help

Introduction

Danshui Plant (2) assembles electronic goods for businesses in order to save labor costs is primarily manufactures and assembles on contract is placed in southern China. Foxconn, the giant contract manufacturer allover China, is a part of the Hon Hai Group (Taiwan), contracting to supply companies like Dell, Apple, and Hewlett Packard, Danshui Plant No. 2 had signed an agreement of 12 month to assemble the (Apple iPhone 4), and the contract termed for Danshui to assemble iPhones (2.4 million) during the period of June 2010 to May 2011. The plant was struggling to meet the production target of 200,000 units monthly, and Wentao Chen, the manager of the plant, was concerned about the situation.

Problem Statement

Danshui Plant No. 2 is behind schedule in fulfilling its agreement with Apple to assemble iPhone 4 (2.4 million) units in a year, with production in the 3^rd month of the agreement at only 180,000 units per month Additionally, the plant is experiencing a loss of $672,000 in plant profit due to its inability to produce the required number of units, and its labor costs are above budget.

The major obstacle for the plant is the difficulty in employing enough skilled labor to increase making to 200,000 units per month, which is needed to accomplish the agreement.

Critical Analysis

Problem 1: Expected and Actual Cost per Unit

Based on the calculation of the given data, the total expected cost per unit using 200,000 units of production is $205.70. This means that if Danshui Plant No. 2 produces 200,000 units of iPhone 4s, the total cost would be $41,140.

On the other hand, the actual cost per unit using 180,000 units of manufacturing and shipment is $211.9. This means that the actual cost of producing and shipping 180,000 units of iPhone 4s is $38,148. Comparing the two costs, we can see that the actual cost is higher than the estimated cost per unit. This indicates that there may have been inefficiencies or unexpected expenses in the production and shipping processes that led to higher costs than what was originally budgeted for.

Problem 2: Flexible Budget for August

After analyzing the given data, it appears that Danshui Plant No. 2 incurred unfavorable variances in several areas, leading to a decrease in net income for the month of August.

In terms of revenue, the plant experienced an unfavorable variance of $360, which means that the actual revenue generated from the production and shipping of 180,000 iPhone 4s was lower than the expected revenue based on the planned production of 200,000 units.

Regarding variable costs, Danshui Plant No. 2 incurred favorable variances in some areas, such as the cost of 8 other chips and variable supplies and tools, which resulted in a total favorable variance of $10,997. However, the plant experienced unfavorable variances in the cost of flash memory and assembly and packaging labor, which led to a total unfavorable variance of $732 respectively. The overall total variable cost incurred was $37,412, which was lower than the expected total variable cost of $47,677 based on the planned production of 200,000 units.

In terms of fixed costs, the plant incurred an unfavorable variance of $7 in the supervision cost, which led to a total fixed cost of $736.

As a result of these variances, the total cost incurred by Danshui Plant No. 2 for the production and shipping of 180,000 iPhone 4s was $38,148, which was lower than the expected total cost of $48,406 based on the planned production of 200,000 units. However, the unfavorable variances in revenue, flash memory, and assembly and packaging labor led to a decrease in net income for the month of August, with a total loss of $672.

Problem 3: Calculation of Variances for August

The overall expected cost per unit for (200) units of production is calculated as $205.70, while the actual cost per unit for 180 units of assembling and shipment is $211.90. This indicates that the actual cost is more than the estimated cost per unit, resulting in an unfavorable variance.

The variable costs associated with the production of iPhone 4 include materials, supplies and tools, labor, and shipping. The analysis shows that the total variable costs for 180 units of production and shipping are $37,412, which is less than the expected variable cost of $47,677 for 200 units of production. This results in a favorable variance of $10,265 for variable costs..........

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