Danshui Plant No. 2 Harvard Case Solution & Analysis

Danshui Plant No. 2 Case Solution

Answer 1:

As in the case, Danshui Plant no. 2 is a manufacturer that collects parts to produce electronic products. As there is high expected demand for IPhone 4, therefore, Apple executive made a contract with the company to collect 2.4 million of iPhone 4. The purpose of the case is to review the monthly performance of operations for the third-month contract for the month of August, with the target production of 180,000 units.

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As per the budgeted information by the manager of Danshui from the Exhibit 1, the total 175,875 units of Apple iPhone 4 should the Danshui plant 2 to produce for breakeven. The breakeven is calculated as fixed cost divided by the contribution margin.

For contribution margin, we need to calculate first the price per unit (Monthly budge Revenue/Units budgeted produce) and variable cost per unit (Budgeted Variable Cost / Units budgeted). Therefore, the contribution margin is the difference between the price per unit and the variable cost per unit, which results in $ 4.14. The fixed of the production includes. Factory rent, machine depreciation, utility fee and local fees, supervision charges and monthly fixed costs, the cumulative sum equals to $ 729,000.

Hence, the company should produce 175,875 units of iPhone 4 in order to cover the variable and fixed expenses, it is the situation where there is no loss and no profit.

Answer: 2

The company's budget based on historical numbers and calculated values. The budget is used to predict the cost, expenses and revenues for a certain time period. After completing the budget, the company determines the actual costs, expenses, and revenues and compares it with budgeted numbers.

The budgeted or actual cost per unit is calculated as the total cost divided by the production unit. As per the exhibit 3, the company’s budgeted production units are 200,000 with estimated cost is 41,140,000, which results in expected cost per unit by dividing cost and unit produced of $ 205.7.

Similarly, the actual total cost (includes: variable, material, and total fixed costs) of producing electronic devices is $ 38,148,000 and the actual total units produced were 180,000, which resulted in a total cost per unit of $ 211.93.Danshui plant no. 2 Case Solution

Answer 3:

The flexible budget is prepared to check the different level of expenditures such as variable costs, revenues. This would result in budget those changes depending on the level changes in the activities that are specific to the inputs. The budget is then matched to the actually incurred information by considering the favorable and unfavorable variance. The favorable variance shows the good level of performance for controlling the cost. And the unfavorable variance shows the poor job level for controlling costs...................

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