Danshui Plant No. 2 Harvard Case Solution & Analysis


The “Danshui Plant” is located in the southern part of China and the company is in agreement with the “Apple Company” for assembling the parts of iPhone 4. The agreement is based on manufacturing “iPhone 4” with a quantity of 2.4million Apple iPhone mobile, which are effective from June 01, 2010 until May 31st, 2011. This corporation is manufacturing electronic products for other corporations, who need to save their cost of labor.

danshui case soluteon

danshui case soluteon

This nature of business is called “outsourcing business”. Moreover, the cost of the labor is cheap in China. The reason is simple, Chinese have all kinds of labors who are skilled and semiskilled. They are available at a very low hourly rate. The Company manufactures all kinds of electronic product with the enhancement of technology. Currently the company has made products for Dell, Apple, Hewlett Packard and these are the leading brands of the world.

Danshui has positively fulfilled the agreement of Apple computer’s hard drive, and they are quite certain to achieve the Apple iPhone request too, as particularly required by the product developer. They are also looking a train for their employees in this type of work which need the specialization about their manufacturing concern. They earned a maximum profit by giving the best product to the clients. The corporation has shipped the iPhone Mobile by charging the cost of labor, overhead, manufacturing parts with addition of shipping cost.

The Enterprise has arranged a monthly financial plan for “Apple”, and all cost is allocated in the currency of US dollar with the comparison of actual results which has been thoroughly analyzed by the company. For calculation, they worked on variances with knowing the company's weaknesses and how to address for the future benefits. The iPhone is assembled in one hundred forty stages in the company. For the effective designing and making the market report, the Apple Company distribute its function for developing the optimal product.

Case Problems

The company is facing a problem in the department where actual and standard hours and units are not meeting as the organization planned. Plant manager of the Company is assembling 2.4 million “iPhone 4” mobile by analyzing their various cost and overhead variances while comparing the budgeted data with the actual data. These problems would be a challenge that how to address them with an effective planning of the company. The total expected cost and actual cost of the parts, labor cost, overhead cost, shipping cost and other cost associated are analyzed under the supervision of the management accountancy and basic practices of cost accounting.

Question 1

  • Using budget data, how many Apple iPhone 4’s would have completed for Danshui Plant No. 2 to break even?

Answer 1

Using the budget data, the analysis fall into the method of Cost volume profit (CVP) analysis, which is used to find the breakeven point.  The cost volume profit analysis would support in the decision making of the product. By analyzing the volume of the company the “Break Even Point” for an iPhone 4 product is 176087 units. This breakeven is calculated by using the formula of fixed cost divided by Contribution per unit. The contribution per unit is extracted by selling price per unit minus variable cost per unit. The fixed cost is $729,000, variable cost per unit is $204 and selling price is $208. This thing is already mentioned in the case. Furthermore, breakeven shows the position where the company is not in the lower position, the product and Cost volume profit is based on the assumption that per unit sales, variable, fixed and other economic conditions remain constants. This analysis is depicted in the excel sheet with names as “CVP and Breakeven” and also annexed in the Appendix D

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?

Answer 2

Budgeted Cost per unit

The total budgeted units of the “iPhone 4” is 200,000 which are assembled by the Company through calculating all the relevant cost of the iPhone 4 product. This Product includes all material cost which processor cost, chips of the phone cost, STMicroelectronics and other costs of chips used, with the addition of Samsung flash memory additional charges which is two dollars per unit in the iPhone 4 mobile. The total budgeted cost is $37,978,000 in which other variable supplies cost $12,508,000.......................

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