Variable Costs

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

2. Using budget data, what was 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.

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

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

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 would these change the costs and profitability of Danshui Plant No. 2 and the iPhone 4 contract?

Answer
1.
Variable Costs: 187.89+13.11+1.06 = $202.06 per unit
Fixed Costs: $729,000 per month
Revenue: 41,240/200 = $206.2 per unit
Contribution Margin = 206.2-202.06 = $4.14 per unit
Break-even = 729,000/4.14 = 176,086.96 units
Answer: 176,087 iPhones
2.
Total Expected Cost per unit: 41,140,000/200,000 = $205.7 per unit
Actual Cost Per Unit: 38,148,000/180,000 = $211.93 per unit
3.
Flexible Budget Actual Variance
Number of Units 180,000 180,000 -
*Values in Thousands of Dollars($)
Revenue 37,116 37,476 360 F
Variable Costs:
Materials
Flash memory 4,860 5,249 389 U
Application Process 1,935 1,935 -
Chips - phone 2,529 2,529 -
Gyroscope 468 468 -
8 Other chips 12,771 12,643 128 F
22,563 22,824 261 U
Variable supplies and tools 11,257.20 11,305 47.80 U
Assembly and packing 2,359.80 3,092 732.20 U
Shipping 190.80 191 0.20 U
Total variable costs 36,370.80 37,412 1041.20 U
Fixed Costs:
Factory rent 400 400 -
Machine depreciation 150 150 -
Utility fee and taxes 52 52 -
Supervision 127 134 7
Total Fixed Costs