You have been hired by Danshui Co. to evaluate the performance of the Plant No.2 and make specific recommendations to increase the plants profitability. Please prepare your analysis as professional as possible. The document will be sent to the Board of Directors.

The CEO have the following questions (they might help you in your analysis):

1. What is the problem with the Plant No2? How critical is the problem?
2. Do you agree with the analysis of the controller? Why or Why not?
3. Based on the budget data, how many Apple iPhone 4s would have to have been completed for Danshui Plant No 2 to break even? Comment on the results.
4. Prepare a variance analysis. Estimate the price and usage variances for flash memories and price and efficiency variances for labor (Assume budget rate per hour = $0.92 / h and Actual total labor hours = 2,585,000 hours) Comment on the results.
5. Make specific recommendations to solve the problems with the iPhone 4 contract in the next nine months.

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 Source: Casewriters and David Barboza, Supply Chain for iPhone Highlights Costs in China," New York Times, July 6, 2010, p. B1. 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 Source: Casewriters 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 Revenue (transfer from Shenzhen) Variable costs Materials Flash memory Application process Chipsphone Gyroscope 8 other chips Variable supplies and tools 5,400 2,150 2,810 520 14,190 5,249 1,935 2,529 468 12,643 151 F 215 F 281 F 52 F 1,547 F 12,507 11,305 1,202 F Subtotal 37,577 34,129 3,448F 2,622 212 40,411 3,092 191 37,412 470 U 21 F 2,999 F Labor Assembly and packaging Shipping Total variable costs Fixed Costs: Factory rent Machine depreciation Utility fee and taxes Supervision Total fixed costs Total costs 400 400 150 52 127 150 52 134 729 736 7U 7U 2,992 F 41,140 38,148 Net income $ 100 $ (672) $ 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 Source: Casewriters and David Barboza, Supply Chain for iPhone Highlights Costs in China," New York Times, July 6, 2010, p. B1. 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 Source: Casewriters 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 Revenue (transfer from Shenzhen) Variable costs Materials Flash memory Application process Chipsphone Gyroscope 8 other chips Variable supplies and tools 5,400 2,150 2,810 520 14,190 5,249 1,935 2,529 468 12,643 151 F 215 F 281 F 52 F 1,547 F 12,507 11,305 1,202 F Subtotal 37,577 34,129 3,448F 2,622 212 40,411 3,092 191 37,412 470 U 21 F 2,999 F Labor Assembly and packaging Shipping Total variable costs Fixed Costs: Factory rent Machine depreciation Utility fee and taxes Supervision Total fixed costs Total costs 400 400 150 52 127 150 52 134 729 736 7U 7U 2,992 F 41,140 38,148 Net income $ 100 $ (672) $ 772 U