Assignment Questions:

1. Using budget data, how many Apple iPhone 4s would have to have been completed for Danshui Plant No. 2 to break even?
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 (using 200,000 units) production? What was the actual (using 180,000 units) cost per unit of production and shipping?
3. Prepare a flexible budget for 180,000 iPhone 4s and calculate flexible budget variances using actual costs for August.
4. For the month of August, calculate the following variances (assume the standard labor rate is $0.92 per hour):
   1. material price variance for flash memories
   2. material usage variance for flash memories
   3. labor rate variance
   4. labor usage (efficiency) variance
   5. overhead spending variance
5. What are some strategies or decisions that Wentao Chen should consider in trying to solve the problems with the Apple iPhone 4 contract in the next nine months? How would these change the costs and profitability of Danshui Plant No. 2 and the iPhone 4 contract? Approach this from both Danshuis and Apples point of view.

Exhibit 1 Standard Variable Costs for iPhone 4 (U.S. Dollars) Bill of materials (per unit) Purchased chips: Flash memory (Samsung) Application processor (Samsung) Chip for phone calls (Infinion) Gryoscope (STMicroelectronics) 8 other purchased chips $27.00 10.75 14.05 2.60 70.95 Variable supplies and tools $125.35 62.54 187.89 Labor: Assembly and packaging (per unit) Shipping (per unit) 13.11 1.06 Exhibit 2 Budgeted Fixed Overhead per Month Factory rent Machine depreciation Utility fee and local taxes Supervision Monthly fixed costs $400,000 150,000 52,000 127,000 $729,000 Exhibit 3 August 2010 Preliminary Report on the Results of Operations (Thousands of U.S. Dollars) Actual Variance Monthly Budget (200,000 units) (180,000 units) (20,000 units) $41,240 $37,476 $3,764 U 5,249 1,935 2,529 5,400 2,150 2,810 520 14,190 12,507 37,577 468 12,643 11,305 34,129 151 F 215 F 281 F 52 F 1,547 F 1,202 F 3,448F Revenue (transfer from Shenzhen) Variable costs Materials Flash memory Application process Chips-phone Gyroscope 8 other chips Variable supplies and tools Subtotal Labor Assembly and packaging Shipping Total variable costs Fixed Costs: Factory rent Machine depreciation Utility fee and taxes Supervision Total fixed costs Total costs 2,622 212 40,411 3,092 191 37,412 470 U 21 F 2,999 F 400 150 400 150 134 736 127 729 41.140 $ 100 7U 2.992 F _38,148 $ (672) Net income $ 772 U Exhibit 1 Standard Variable Costs for iPhone 4 (U.S. Dollars) Bill of materials (per unit) Purchased chips: Flash memory (Samsung) Application processor (Samsung) Chip for phone calls (Infinion) Gryoscope (STMicroelectronics) 8 other purchased chips $27.00 10.75 14.05 2.60 70.95 Variable supplies and tools $125.35 62.54 187.89 Labor: Assembly and packaging (per unit) Shipping (per unit) 13.11 1.06 Exhibit 2 Budgeted Fixed Overhead per Month Factory rent Machine depreciation Utility fee and local taxes Supervision Monthly fixed costs $400,000 150,000 52,000 127,000 $729,000 Exhibit 3 August 2010 Preliminary Report on the Results of Operations (Thousands of U.S. Dollars) Actual Variance Monthly Budget (200,000 units) (180,000 units) (20,000 units) $41,240 $37,476 $3,764 U 5,249 1,935 2,529 5,400 2,150 2,810 520 14,190 12,507 37,577 468 12,643 11,305 34,129 151 F 215 F 281 F 52 F 1,547 F 1,202 F 3,448F Revenue (transfer from Shenzhen) Variable costs Materials Flash memory Application process Chips-phone Gyroscope 8 other chips Variable supplies and tools Subtotal Labor Assembly and packaging Shipping Total variable costs Fixed Costs: Factory rent Machine depreciation Utility fee and taxes Supervision Total fixed costs Total costs 2,622 212 40,411 3,092 191 37,412 470 U 21 F 2,999 F 400 150 400 150 134 736 127 729 41.140 $ 100 7U 2.992 F _38,148 $ (672) Net income $ 772 U