Independent University

Bangladesh

Assignment
Cost Accounting
Submitted to: Md. Safiuddin
Semester- Autumn 2016
Section -1
Date of submission- 07/11/2016

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 Table of Content

Topic Page no
Introduction 03
Data Analysis 03
Breakeven sales for Apple iPhone 4 04-05

Cost per unit and the actual cost. 06-07

flexible budget 07-08
Estimate material price and usage for flash 09-10
memories, labor rate and usage

Strategies or decisions 11

Conclusion 12

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 Introduction
Danshui Plant No. 2 is a contract manufacturer that assembled electronic product.
In high expectation of demand for iPhone 4, Apple had contracted with Danshui to
assemble 2.4 million iPhone with a 12 month period.

Wentao Chen, manager of Danshui was anxious upon reviewing the monthly
operations performance for August as in the third month of the contract,
production was only 1, 80,000 units.

Date analysis

Break-even point analysis

Actual cost for august
Total cost variance analysis
Material price, labor rate and variances for august
Strategies or decisions

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 Solution 1

Using Budget Data, estimate the breakeven sales for Apple iPhone 4

Calculation Total Variable Cost

Material cost Labor Cost Shipping Cost

187.89 13.11 1.06
Total Variable cost 202.06 Per Unit

Calculation Total Fixed cost

Factory rent Machine Utility fees Supervision

Depreciation and taxes
4,00,000 150000 52000 127000
Total Fixed cost 729,000 Per Month

Calculation price per unit

Formula= (Revenue/Total units produced)

Revenue 41,240,000
Unit 2,00,000
Price per unit 206.20

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 Contribution margin

Formula= (Price per unit variable cost per unit)

Price per unit 206.20

Variable cost per unit 202.06
Contribution margin 4.14 per unit

Break even

Formula= (Fixed Cost / Contribution margin)

Fixed Cost 729,000

Contribution margin 4.14
Break even 176,086.95 unit

176,086.95 Or 176,087 Apple iPhone 4s would have to have been completed for
Danshui Plant No.2 to break even.

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 Solution 2

Using the budget Data, what was the total expected cost per unit if all
manufacturing and shipping overhead (both variable and fixed) were allocate to
planned production? What was the actual cost per unit of production and shipping?

Total variable per Unit

Total Variable Cost 40,411,000

Unit 180,000
Total variable per Unit 224.50

Total Fixed Cost per Unit

Total Fixed Cost 729000

Unit 180,000
Total Fixed Cost per Unit 4.05

Total Cost per Unit

Total variable per Unit 224.50

Total Fixed Cost per Unit 4.05
Total Cost per Unit 228.55

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 Total expected cost per unit

Total expected cost 41,140,000

unit 200,000
Total expected cost per unit $205.70

Actual cost per unit

Actual cost 38,148,000

Unit 180,000
Actual cost per unit $211.93

Solution 3

Prepare a flexible budget for 180,000 iPhone 4s and calculate flexible budget
variance using actual cost for August.

The company damaged 1,000 units of flash memory so company used more flash
memories than expected. The variance of 8 other chips is positive; we cannot say
the amount of chips decreased, so it should be the price of chips went down. The
variance of supplies and tools is negative. Because of the below reasons:
Company used the supplies and tools less efficient, which means used more of
supplies and tools Company spends more money on purchase supplies and tools

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 Actual price (Flash memory)
Flash memory 5,249,000
Unit (180,000+1,000)=181,000
Actual price $ 29

So here,
Actual quantity= 181,000 unit
Standard quantity= 180,000 unit

Price Variances for Flash Memories

Formula= (Actual Price Standard Price) Actual Quantity
= (2927) 181,000
= $362,000 Unfavorable

Usage Variances for Flash Memories

Formula= (Actual Quantity Standard Quantity) Standard

= (181,000180,000) 27

= $27,000 Unfavorable

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 Solution 4

Basically, variance analysis means the difference of the standard and actual
outcomes with the consistency and efficiency of the product or company levels.
Variances can be positive or negative, the negative may arise due to inadequacy of
the management or it may come from a certain variation in the economy prices of
the material and labor. Rate/Price variance, usage variance and overhead spending
calculation are shown in the excel sheet with the name Analysis of Variance and
also depicted in the Appendix B. Variances shows lack of labor efficiency by use
of Samsung flash chip in the iPhone 4 and they are losing approximately 1000
chips per month. Although hiring is complete with skill full labor. Further material
changes come due to price changes. Overhead variance occurs due to the
inefficiency of the production department.

Material Usage Variance:

Formula = (Monthly budget unit-Actual Unit) X Standard price

= (180,000 200,000) X 27

= 540,000 F

Material Price Variance:

Formula = (Actual Price Standard Price) X Monthly budget unit

= (29.16-27.00) X 180,000

= $388,800 U

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 Direct Labor Rate Variances

Formula= (Actual rate- Standard rate) X actual hour (production)

= (17.18-13.11) X 180, 000

Actual rate= 3,092,000/180,000
= $732,600 U = 17.18

Direct Labor Efficiency Variance

Formula= (Actual hour-Standard hour) X Standard rate

= (180,000-200,000) X 13.11

= $262,200 F

Total labor variance

Formula= Labor variance-Efficiency variance

= 732,600 (U) -262,200 (F)

=$ 470,400 U

Fixed Overhead spending variance

Formula= (Actual fixed manufacturing overhead Standard fixed

manufactured overhead)

=736,000 729,000

= $7,000U

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 Solution 5

It is expected that the contract price should be raised in order to profitable that
variance observed in the analysis. By variance analysis, the team can determine
the most effective costing strategy that can help the company to absorb the
additional production costs. The new costing strategy will help the company and
the contractors overcome costing related issues. Suggest cost over runs and lack of
production handling and control while damages are also observed in material
handling. So Direct cost is expected to cover efficiency of its production while it
reducing losses or damages to material

Suggestion and recommendation

The most cost effective way to help production level under same capacity
Achieve learning curve effect under well-organization
Motivate employee morale and concern their welfare
Mix balance strategy should advise
Overtime schedule plan plus pay for the performance policy

Alternative strategies

Overtime schedule plan

Outsourcing
Pay for performance policy
Cellular manufacturing
Increase wages

The skilled labor will fulfill the demand of iPhone 4 which would come in the
future as it is estimated in the market of iPhone 4. The organization should
recruit labor globally and the second alternative is that they should install a new
plant in their region where they are facing the problem

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 Conclusion

Training is the best solution to overcome the labor problem and to meet up the
requirement to produce 200000unit of Apple iPhone 4 per month for upcoming
nine months that is left. Other than that, training also can faster up the assembly
process of parts in iPhone4. To cover up the cost that accrued from the training to
the labor, Danshui can ask Apple to contribute or incensement in the revenue form
to equalize the cost the occurred. This because the training also will not jut benefit
Danshui but also Apple they can their iPhone to be ready on the time in order to
meet up with demand of their customer. The short-term plan that we are planned to
ensure the success of the solution that had been choose is on job training. On Job
Training means the labor will given the training while they are doing their work
with the supervision from their supervisor. By doing this, the mistake that
committed by the labor will corrected on the spot and it will reduce the chances of
error from occurring as the labor will be used their job quickly and their mistake is
corrected faster.

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