Danshui Plant No.2

INTRODUCTION DANSHUI found No. 2 is laid in southern China was a bid manufacturer that assembled electronic products for companies wishing to save patience damages. DANSHUI was getting a one-year nip with apple Inc. to assemble 2. 4 million iPhones. It was very anxious when in the first leash calendar months of the contract, the imprint is unable to be assembled as more as the expected and its operating at a loss. The plant has had worry hiring enough workers despite raising struggle to 35%.In addition, the do work of ingathering is complex and required almost entirely ground on handiwork by 325 workers, with 140 steps involving 100 instalments during 5 days. The DANSHUI subdueler considers preparing a supple reckon whether it is more useful to dish up them set the misinterpreting their performance. Li in addition must analyze the currently static reckon micturate been used and prep atomic number 18 a summary of monthly outgrowths to identify what goes wron g in their operations that contribute to the performance riddles.If DANSHUI non study the sources of problem and find the alternatives ways, it will contribute to disability in execute the contract and in the long marches will lead to inefficiency of authoritative the cost of materials, grate and overhead. This is in fix up to provide incentive to control either costs whether caused by use waste, damage theft or inefficiencies. ISSUE/PROBLEM DANSHUI prepare has faced an important issue, that is trying to top the deficit of output line in the first three month and overly caught up with the orchard apple tree IPhone 4 contract in the expect of the club month.As we dissolve come that after having accounting from the plant operation, DANSHUI envision is not meeting with the targeted production line, with is curtage close 10% from the targeted come in. Although DANSHUI write out to uncover up to 90% of the contract, but the in shortfall 10% has offspring DANS HUI to face loss about $672,000 rather than bring in $100,000. For the first three month, DANSHUI swallow met the paucity of 10%. therefore, DANSHUI Plant hold up to plan a strong strategic in order to catch up with the Apple iPhone 4 contract in the rest of the nine month.If the contract total is not reach during the end of the contract, DANSHUI Plant will bear more higher(prenominal) cost than revenue that will result loss to this plant. subsequently study the situation, we withal find out that labor advertise and labor cost engender contributed to this issue too. For the labor cost, DANSHUI Plant has result over calculate in labor cost. As comparison to the budgeted, this figure is higher and yet the target production has not reached. By machinate the labor cost around 30%, DANSHUI Plant will need to summation the production line to cover the increment.And bear in mind that, DANSHUI plainly has nine months leave. Although DANSHUI Plant raises the labor price per hour, but we can take after that this did not help DANSHUI Plant to solve the shortage labor force much. Since DANSHUI Plant was built at the semi- delicate labor field, labor cost is cheap. DANSHUI Plant still cannot maturation the number of labor force needed. The issue has contributed to the shortage in production line for the first three months. This is due to DANSHUI Plant is heavy rely on handwork by labor.DANSHUI Plant raise the labor price is to hire the qualified labor force to toil up the production line. As we noted that DANSHUI Plant has simply nine months to ensure everything in targeted and withal cover the difference at the earlier three months. As the production line is found on handwork, the component import is easy damaged. Large number of materials needs to stand in from that. Therefore a high skilled level labor forces can help to reduce this problem. CONCEPTS AND STRATEGIESBefore proceed with the strategies or concepts, our group have analyzed the streng ths and weaknesses of DANSHUI in order to get it on which strategy DANSHUI should go for. Based on the case, we know that DANSHUI strength is they has had the opportunity to get contract from Apple because of the trust and by having cheap labor cost that giving them an advantage compare to their competitor. mend the DANSHUI weaknesses is the labor cost. DANSHUI wish to save the labor cost by paying their labor less than one dollar an hour.They also have problem in finding enough qualified labor to match with their production even though they have raised their factory wages by almost 30% since July. This is why the plant is unable to assemble as many phones as expected and causes the operating at a loss. To vanquish the problem regarding to the plant has performed so poorly in the three full-strength months, DANSHUI have to consider for strategic concept to enable the problems can be identified and resolved amicably.To get hold of this, DANSHUI can consider the breakeven analys is to run across when a backup will be able to cover all its expenses and begin to make a profit. This break-even analysis will shows the amount of revenue that need to be bring in to cover the expenses before a dime of profit have been made. For example, if DANSHUI can attain and surpass their break-even point, which remember that if they can easily bring in more than the amount of gross revenue revenue they need to meet their expenses, then their business stands a inviolable chance of making money.To perform a break-even analysis, DANSHUI have to make ameliorate guesses about their expenses and revenues. Although DANSHUI did not have a crystal ball, they should do slightly serious research including an analysis of their market so that they can determine their projected sales volume and anticipated expenses. Based on the case, we know that DANSHUI is currently using the static budget to measure their performance. However, problem has occurred and the plant manager is consider ing using limber budget to resolve the problem.Flexible budget is found upon different levels of activity. It is a very useful tool for comparing true(a) costs experienced to the cost allowable for the activity level achieved. It is also adjusts the static budget for the actual level of output. For example, if DANSHUI factory actually produce 200,000 units, then managements should compare actual factory costs for 200,000 units to what the factory should have spent to make 200,000 units, not to what the factory should have spent to make 180,000 units or any other production level.Furthermore, flexible budget distinguishes amid fixed and variable cost, thereby allowing for a budget that can be automatically adjusted to the level of activity actually attained. In short, the flexible budget provides a better opportunity for planning and controlling than does a static budget. Furthermore, DANSHUI needed to apply the variance analysis to measure their business performance and to obse rve how well a business is performing and also how close actual costs and revenues are to expected costs and revenues.In accounting, a variance is defined as the difference between the expected amount and the actual amount of costs or revenues. The purpose of this detailed cultivation is to assist DANSHUI in determining what may have gone properly or wrong and to help the company in future decision-making. tribute DANSHUI Company was in invidious performance by using hackneyed cost budgeting arrangement consequences of failing to achieve the 200,000 unit per month target. For the short term we recommend DANSHUI to change from using static budget carcass to the flexible budgeting system for evaluation process.Before this, Li was using static budget system to evaluate the operation performance, but the evaluation are not comparing relevant information when the actual quantity iPhone assemble are differ from the budget (180,000 unit vs 200,000 unit). By using flexible budget sys tem will help DANSHUI to compare the result with adjustable budget and the variance show will more accurate show the operation performance. Using the static budget show variance is unfavorable USD 772,000 compare with USD 688,000 in flexible budget system.Flexible budget systems also prove the unfavorable performance caused by the variance from variable cost which is USD 1,041,200. Therefore can analyze and evaluate the weakness in controlling the variable cost which is flash memory, assembly and packaging expenses. In long term period, DANSHUI have to overcome shortage in skilled worker by subvert or rent a automobile to replacing the man provide in assembly the iPhone. In assembly process will shoot 140 steps and almost all steps are based on handwork and the worker shortage is a barrier to achieve the target.With invest in new machine, DANSHUI can reduce the handwork projection but have to appoint some skilled worker to maneuver the machine. Firstly, DANSHUI have to identif y which step in operation can replace by machine. Then, find the relevant machine and analyze the price vs value. If they only want to use the machine for temporary, it is better for DANSHUI to rent rather than debase the machine. Other than that, DANSHUI can hiring more skilled mental faculty or increase the total ply to assemble the 200,000 unit iPhone per month.DANSHUI must fulfill the contract with producing 2. 4 million in one year for the good family with Apple and for getting contract in future. Apple product also had good demand in current and future market, therefore DANSHUI have to take this opportunity to be the sub manufacture for Apple. In process getting new staff, DANSHUI also must maintain their existing staff because the existing staff already gain experience in 3 month operation of assembly iPhone 4 by increasing observe system.After getting the sufficient staffs, DANSHUI have to increase the monitoring and controlling system to reduce the reject product and a lso repairing cost. CONCLUSION As to negligee up the discussion, we know that DANSHUI has had difficulty hiring enough workers despite raising wages to 35%. DANSHUI Plant has faced an important issue, that is trying to solve the shortage of production line in the first three month and too caught up with the Apple iPhone 4 contracts in the rest of the nine month.After having report from the plant operation, DANSHUI Plant is not meeting with the targeted production line, with is shortage about 10% from the targeted amount. Although DANSHUI manage to produce up to 90% of the contract, but the shortage 10% has result DANSHUI to face loss about $672,000 rather than profit $100,000. Therefore, we think that DANSHUI should do an analysis about company strengths, weakness and the opportunities and threats that DANSHUI faculty face in the future. Instead of doing the breakeven analysis, DANSHUI can consider using flexible budget to resolve the problem.DANSHUI needed to apply the variance in order to assist DANSHUI in determining what may have gone expert or wrong and to help the company in future decision-making. For the short term period, we recommended DANSHUI to change from using static budget system to the flexible budgeting system for evaluation process. DANSUI have to overcome shortage in skilled worker by buy or rent a machine to replacing the man power in assembly the iPhone for the long term period and in the same time, DANSHUI can hiring more skilled staff or increase the total staff to assemble the 200,000 unit iPhone per month as well .REFERENCES i) How to Calculate Total Cost in political economy eHow. comhttp//www. ehow. com/how_6201642_calculate-total-cost-economics. htmlixzz2PryO0OD9 ii) http//www. google. com. my/hl=ms&q=how++company+recognized+revenue+based+upon+ play a joke on+contract%3F&oq=how++company+recognized+revenue+based+upon+FOB+contract%3F&gs_l=serp. 3 441582. 476078. 14. 477609. 57. 41. 0. 3. 3. 1. 1984. 10543. 12j13j7j3j1j1j1j1j1. 40. 0 0. 0 1c. 1. 8. serp. C6aJUxBdYKQ&bav=on. 2,or. &bvm=bv. 44770516,d. bmk&fp=944a8501217e5f2c&biw=1280&bih=699