Danshui Plant No.

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A CASE ANALYSIS
 1.
Background
of the Case
Background of the Case
▪ Danshui is a contract manufacturer that assembles
electronic products for companies wanting to save
on labor costs
▪ Has a 12-month contract with Apple to assemble 2.4
million units of Apple iPhone 4
▪ Prior to the Apple contract, Danshui Plant No. 2 has
been assembling computer hard drives
▪ Management is confident that the workers can easily
adapt to a new and different assembly scheme
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Background of the Case (continued)
▪ However, in August 2010, third month of the
contract, monthly production has only been 180,000
units (instead of 200,000 units/month)

▪ underproduction alarmed Wentao Chen, manager of

the plant

▪ August revenue is below target, material usage

seems good and labor costs were above budget
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Background of the Case (continued)
▪ Plant profit had a loss of $672,000

▪ Company is also facing problems in hiring enough

people to meet quantity requirements despite 30%
increase in wages

▪ In addition, there is material wastage due to

inefficiency in installing Samsung flash memory
resulting to an additional cost of $2/unit
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 2.
Case Problems
Case Problems
2. Using budget data, what
was the total expected
cost per unit if all
1. Using budget data, how
manufacturing and
many Apple iPhone 4’s
shipping overhead (both
would have to have been
variable and fixed) were
completed for Danshui
allocated to planned
Plant No. 2 to break-even?
production? What was the
actual cost per unit of
production and shipping?
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Case Problems (continued)
3. Prepare a flexible 4. Estimate material 5. What are some
budget for 180,000 price and usage for flash strategies or decisions
iPhone’s and calculate memories, labor rate that Wentao Chen
flexible budget and usage (efficiency) should consider in trying
variances using actual variances and the to solve the problems
costs for August. overhead spending with Apple iPhone 4
variance for August. contract in the next nine
months? How would
these change the cost
and profitability of
Danshui Plant No. 2 and
the iPhone 4 contract?

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Assumptions,
3.
Scope
and Limitations
 ▪ No new machine will
▪ Fixed costs are within
be added into the
relevant range and will
assembly line.
remain constant.

▪ No significant
▪ No significant
fluctuation on
fluctuation on CNY-
exchange rate of CNY
USD exchange rate (?)
and USD (?)

1. Contract between
1. Contract between
Danshui and Apple
Danshui and Apple
cannot be rescinded.
cannot be rescinded.
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 4.
Analysis/Solutions
 also known as cost-volume profit
Break-even analysis, is the study of the
relationship between selling prices,
Analysis sales volumes, fixed costs, variable
costs and profits at various levels of
activity.

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

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Break-even Point

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Break-even Point

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 176,087
iPhone 4 units have to be produced to breakeven.

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