Prepare a flexible budget for 180,000 iPhone 4s, and calculate flexible budget variances using actual costs for August.
For the month of August, calculate the following variances (assuming the standard labor rate is $0.92 per hour):
- Material price variance for flash memories
- Material usage variance for flash memories
- Labor rate variance
- Labor usage (efficiency) variance
- Overhead spending variance
What are some strategies or decisions that Wentao Chen should consider when trying to solve the problems with the Apple iPhone 4 contract in the next 9 months? How would these change the costs and profitability of Danshui Plant No. 2 and the iPhone 4 contract? Approach this from both Danshui’s and Apple’s point of view.
| Bill of materials (per unit) | |||||||
| Purchased chips: | |||||||
| Flash memory (Samsung) | $ 27.00 | ||||||
| Application processor (Samsung) | 10.75 | ||||||
| Chip for phone calls (Infinion) | 14.05 | ||||||
| Gyroscope (STMicoelectronics) | 2.60 | ||||||
| 8 other purchased chips | 70.95 | ||||||
| $ 125.35 | |||||||
| Variable supplies and tools | 62.54 | ||||||
| $ 187.89 | |||||||
| Labor: | |||||||
| Assembly and packaging (per unit) | $ 13.11 | ||||||
| Shipping (per unit) | $ 1.06 | ||||||
| Total Standard Cost per Unit |
$ 202.06 |
||||||
| Factory rent | $ 400,000 | |||||
| Machine depreciation | 150,000 | |||||
| Utility fee and local taxes | 52,000 | |||||
| Supervision | 127,000 | |||||
| Monthly fixed costs | $ 729,000 | |||||
| Total revenue | Total units | Revenue per unit | ||||
| Revenue per unit | $41,240,000 | 200,000 | $ 206.20 | |||
| Standard cost per unit | 202.06 | |||||
| Contribution margin per unit | $ 4.14 | |||||
| Break-even in units | 176,087 | |||||
| Calculation of standard labor hours per unit: | ||||||
| Standard cost of labor per unit | $ 13.11 | |||||
| Cost of direct labor per hour | 0.92 | |||||
| Direct labor hours per unit | 14.25 | DLH per unit | ||||
