Note: All Numbers Are In Thousands Of US Dollars

Note All Numbers Are In Thousands Of US Dollars And Thousands Of U

Note: All numbers are in thousands of U.S. dollars and thousands of units. Question 1: Using budget data, how many Apple iPhone 4s would have to have been completed for Danshui Plant No.2 to break even? Answer: Contribution Margin = Sales – Variable Cost; Contribution Margin Ratio = Contribution Margin / Sales; BEP $ = Fixed Cost / Contribution Margin Ratio; Price per unit = Sales / Units; BEP units = BEP $ / Units. Therefore:

- Contribution Margin = $41,240 - $40,411 = $829

- Contribution Margin Ratio = $829 / $41,240 = 0.02

- BEP $ = $729 / 0.02 = $36,450

- Price per unit = $41,240 / 200 units = $206.2 per unit

- BEP units = $36,450 / $206.2 per unit ≈ 177 units

Question 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 = Expected Total Cost / Expected units = $41,140 / 200 units = $205.7 per unit

- Actual cost per unit = Actual Total Cost / Actual units = $38,148 / 180 units ≈ $211.93 per unit

Question 3: What substantive issues were raised?

- Production shortfall: Danshui Plant No.2 only produced 180,000 units instead of the planned 200,000 units, resulting in a 10% shortage that caused a loss of approximately $672,000 instead of a profit.

- Workforce challenges: Difficulty finding qualified labor despite wage increases of nearly 30%, leading to increased errors, waste, and inefficiencies due to variability in skill levels.

- Component damage: Samsung flash memory experienced damage during installation; Samsung responded by installing protective shields and increasing unit prices by $2.00, further impacting costs.

Question 4: Student analysis of the case should include the Danshui Plant 2 context and some of the problems it is facing.

- Breakeven Analysis: The sales price per unit, variable costs per unit, and contribution margin were calculated to determine a breakeven point of approximately 177 units, which is below the planned 200,000 units, indicating that at current cost structures, the plant is marginally profitable only beyond a certain volume.

- Cost per Unit: The budgeted expected cost per unit was approximately $205.70, while actual costs were higher at about $211.93, indicating cost overruns possibly due to labor inefficiencies and component issues.

- Flexible Budget and Variance Analysis: The flexible budget adjusts for actual production, revealing variances primarily in labor and component costs, emphasizing areas needing managerial attention to control costs.

Question 5: What type of information has been provided in Exhibits 1, 2, & 3?

- Exhibit 1 presents the detailed budgeted and actual costs per unit, including variable and fixed cost breakdowns.

- Exhibit 2 compares budgeted and actual total costs and production volumes, facilitating variance analysis.

- Exhibit 3 likely contains additional financial or operational data relevant to assessing performance, though details are not explicitly provided here.

Question 6: Calculate the budgeted selling price per unit, the gross margin per unit, and the gross margin percentage.

- Total Cost per Unit = $205.94

- Selling Price per Unit = $206.20 (from earlier calculation)

- Gross Margin per unit = $206.20 - $205.94 = $0.26

- Gross Margin Percentage = ($0.26 / $206.20) × 100 ≈ 0.13%

Question 7: Why are the gross margin per unit and the gross margin percentage low?

- The low gross margin is due to high costs relative to the selling price, primarily driven by elevated variable costs such as materials and labor, as well as fixed costs allocated per unit.

- Cost control measures and pricing strategies are necessary to improve profitability margins.

Question 8: Calculate the budgeted or expected breakeven point. Is it higher than 180,000 units? Why were there losses of $672,000?

- The breakeven volume based on contribution margin calculations is approximately 177 units, far less than 180,000 units, indicating the plant operates profitable at planned volumes.

- The observed loss of $672,000 is mainly due to production shortfalls, increased costs from damaged components, workforce inefficiencies, and higher than expected variable costs, which together eroded profitability despite having a breakeven volume well below actual production levels.

Paper For Above instruction

The analysis of Danshui Plant No.2’s financial and operational performance reveals critical insights into cost management, production efficiency, and strategic pricing. Based on budget data, the plant's breakeven point is pivotal for understanding sustainability amid production shortfalls and rising costs. The plant produced 180,000 units against a plan of 200,000 units, which resulted in a notable loss of approximately $672,000. This shortfall underscores the importance of operational efficiency and workforce capability in meeting production targets.

Financial analysis indicates that the contribution margin per unit is approximately $4.14, with a contribution margin ratio of 0.02, translating to a breakeven volume of about 177 units. While this suggests the plant can be profitable at low volumes, the practical scenario is more complex, influenced by fixed costs and variable expenses. The total expected cost per unit was $205.70, compared to an actual cost of $211.93, illustrating cost overruns. These overruns are primarily attributable to labor inefficiencies, component damages, and increased component costs, notably the Samsung flash memory issues and subsequent damage during installation.

The low gross margin per unit—around $0.26—and a gross margin percentage of approximately 0.13% reflect thin profit margins, emphasizing the need for cost reductions and more effective pricing strategies. The high variable costs, including materials, labor, and shipping, combined with rising fixed costs, weaken overall profitability. Addressing these issues requires implementing better quality controls, workforce training, supply chain optimizations, and strategic pricing adjustments.

The operational challenges faced by the plant encompass workforce limitations, including difficulty in sourcing qualified labor despite wage increases. This shortage contributes to errors, waste, and production delays, directly impacting costs and output. Furthermore, the damage to Samsung flash memories during installation signifies the significance of quality assurance in component handling, with Samsung’s response increasing unit costs further impacting margins.

In terms of strategic improvements, the plant should focus on enhancing workforce skills through targeted training, optimizing assembly processes to minimize errors and waste, and strengthening supplier quality management. Additionally, pricing strategies must be revisited to ensure margins cover increased costs while remaining competitive. From a managerial perspective, employing flexible budgeting and variance analysis provides vital feedback for ongoing operational improvements.

Beyond internal operations, broader market considerations are essential. The high dependency on specific components such as Samsung flash memory introduces risks, and diversifying suppliers could mitigate damage-related costs. Furthermore, market dynamics and customer preferences necessitate a middle ground between cost control and innovation to sustain profitability.

Overall, Danshui Plant No.2’s experience underscores that successful manufacturing hinges on a delicate balance of cost management, process efficiency, and strategic pricing, especially under constraints of labor shortages and component-related risks. Continuous improvement initiatives combined with proactive supply chain and workforce strategies will be critical for attaining sustainable profitability and growth amidst competitive pressures.

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