# Danshui Plant №. 2

Harvard Business School Case: W. Burns, J H. Hertenste, and K Liu

Budget Actual Budgeted Sales \$41,240

Budgeted Sales Units 200

Budgeted Selling Price \$206.20

Contribution Income Statement (Unit Cost) 200 180

Budget Actual Unit Selling Price \$206.20

Unit Variable Costs:

Materials \$187.89

Labor \$13.11

Shipping \$1.06

Total Unit Variable Cost \$202.06 Unit

Contribution Margin \$4.14

Total Fixed Costs \$729.00 Unit

Fixed Cost \$3.65 Unit

Gross Margin \$0.49

Breakeven Units 176,087

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

Production units = 200 units

Revenue = \$41,240

Variable cost = 187.89 + 13.11 + 1.06 = \$202.06 per unit

Fixed cost \$729,000 per month

Price per units (revenue/unit) = \$206.20

Contribution Margin = \$206.2 — \$202.06 = \$4.14 per unit

Breakeven point= fixed cost/contribution margin

Break-even = 729,000 / 4.14 = 176,086.96 units

What was the total expected cost per unit using budget data 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?

• Budget Actual Unit Variable Cost: \$202.06 Unit
• Fixed Cost \$3.65 Cost per Unit
• (+) — — — — — — — — — — — — — — — — — — — — — — — — — — — —

Total Expected Cost per unit: \$205.71

Total Expected Cost per unit: 41,140,000 / 200,000 = \$205.7 per unit

Actual Cost Per Unit: 38,148,000 / 180,000 = \$211.93 per unit

Prepare a flexible budget for 180,000 iPhone 4’s and calculate flexible budget variances using actual costs for August.

Actual Price: 5249000/181000=\$29

Standard Price: \$27

Actual Quantity: 181000 units

Standard Quantity: 180000 units

Price Variances for Flash Memories= (Actual Price — Standard Price)× Actual Quantity= (29–27)×181,000= \$362,000 Unfavorable

Usage Variances for Flash Memories= (Actual Quantity — StandardQuantity) × Standard Price= (181000–180000)×27 =\$27000Unfavorable

Standard Labor Rate: \$11.8/hour
Actual labor rate: \$15.36/hour
Standard hours: 2359,800 /11.8=199983
Actual hours: 3092000/15.36= 201302
Labor Rate Var:(15.36–11.8)*201302=\$716653.12 Unfavorable Efficiency Variance: (201302–199983)*11.8=\$15564.2 Unfavorable

Estimate material price and usage for flash memories, labor rate and usage (efficiency) variances, and the overhead spending variances for August.

Material price variance for flash memories

= [\$29.16 — \$27.00] x 180,000
= \$2.16 x 180,000
= \$388,800 UN = [180,000–200,000] x \$27 = 20,000 x \$27= \$540,000 F
\$388,800 — \$540,000 = \$151,200 Favorable

Labor rate variance & Labor usage (efficiency) variance = [\$13.11–17.18] x 180,000

= \$4.07 x 180,000
= \$732,600 UN [180,000–200,000] x \$13.11 = 20,000 x \$13.11= \$262,200 F
\$732,600 — \$262,200 = \$470,000 Unfavorable