Please read the attached case study. Question: 3. Prepare a flexible budget for
ID: 2523869 • Letter: P
Question
Please read the attached case study.
Question:
3. Prepare a flexible budget for 180,000 iPhone 4’s and calculate flexible budget variance using actual costs for August.
Answer must include ann excel chart with computations and a breif write up explaining the answer.
Danshui Plant No. 2 In August 2010, Wentao Chen, manager of Danshui Plant No. 2 in southern China, was anxious. The plant was in the third month of a twelve month contract to assemble the Apple iPhone 4. The contract called for Danshui to assemble 2.4 million iPhones in the period between June 1, 2010 and May 31, 2011, but now in the third month of the contract, production was only 180,000 units per month. Chen called Jianye Ma, the plant controller, to request a summary of monthly operations for August as soon after the end of the month as possible. Ma promised to prepare a report as quickly as he and his assistant, Bingqian Li, could do so in September. Danshui was a contract manufacturer that assembled electronic products for companies wishing to save labor costs by locating in southern China where semiskilled labor was available for less than one dollar an hour. Manufacturers like Danshui assembled parts in large plants using assembly line techniques according to specifications of the international companies that contracted with them for assembly and final testing. The largest contract manufacturer in China was Foxconn, a division of the Hon Hai Group ofTaiwan, with more than 800,000 workers in China alone and contracts to supply Apple, Dell, and Hewlett Packard among others. In expectation of high demand for the iPhone 4, Apple had contracted with Danshui to assemble iPhones in Plant No. 2, which had been assembling computer hard drives on a contract that was fulfilled at the end of May 2010. 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 that it could hire and train the additional workers when needed. Chen's job was to get Plant No. 2 up to speed to fulfill the Apple contract and earn a profit for Danshui's parent company, located in Hong Kong, China. Danshui Plant No. 2 was a profit center that was credited for each iPhone produced and shipped, and charged for parts, labor, overhead, and shipping. Because the contract was for a year, an annual budget was established soon after the iPhone contract This case was prepared by Professor Emeritus William J. Bruns of the Harvard Business School, Associate Professor Julie H. Hertenstein and Assistant Professor Kelvin Liu of Northeastern University. Please do not copy or distribute electronically by any means. The Danshui Plant and all names are fictional. Some data on the iPhone 4 is adapted from David Barboza, "Supply Chain for iPhone Highlights Costs in China," New York Times, July 6, 2010. March 12, 2012.Explanation / Answer
EXPLANATION --
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
EXPLANATION --- Using budget data, the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocated to planned production and the actual cost per unit of production and shipping is calculated as below --
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
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