Danshui Plant No. 2 in southern China is a contract manufacturer that assembles electronic products and has a one-year contract with Apple Inc. to assemble 2.4 million iPhones. Monthly production target for DC is 200,000 units but in the first three months of the contract, the plant is unable to assemble as many phones as expected and is operating at a loss. Wentao Chen, manager of Danshui was anxious on reviewing the monthly operation’s performance of august as in the third month of the contract, production was only 180,000 units. The plant has had difficulty hiring enough workers despite raising wages over 30%.
1. Assembly process for an iPhone is complicated.
2. Danshui has underproduction.
3. There is a lack of qualified labor.
4. Insufficient information to train their workers.
5. Insufficient experience to manage operations.
1. The plant manager considers whether a flexible budget would be more useful for uncovering problems than the static budget currently being used. 2. Need to perform breakeven and flexible budget analyses and calculate price and usage variances as they consider solutions for the plant’s problems with the iPhone contract. 3. What should be the total expected cost per unit 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?
4. To suggest as to how Apple iPhone 4’s would have been have to have been completed for Danshui Plant No.2 to break. 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 these would change the costs and profitability of Danshui Plant No.2 and the iPhone 4 contract.
It is expected that the contract price should be raised in order to be profitable as variances observed in the analysis suggest cost overruns and lack of production handling & control while damages are also observed in material handling. Thus DC is expected to cover efficiency of its production while reducing loss / damages to materials.
Suggestions and recommendations:
1. The most cost effective way to boost up production level under same capacity.
2. Motivate employees’ morale and concern their welfare.
3. Achieve learning curve effect under well-organized OT plan.
4. Mix balance strategy is advised: Over time schedule plan plus pay for performance policy.
1. Over time schedule plan
2. Cellular manufacturing
3. increase wages
4. pay for performance policy