Danshui Plant No.2 Essays

1997 Words Apr 24th, 2013 8 Pages

DANSHUI Plant No.2 is located in southern China was a contract manufacturer that assembled electronic products for companies wishing to save labor costs. DANSHUI was getting a one-year contract with apple Inc. to assemble 2.4 million iPhones. It was very anxious when in the first three months of the contract, the plant is unable to be assembled as many as the expected and its operating at a loss.

The plant has had difficulty hiring enough workers despite raising wages to 35%. In addition, the process of assembling is complex and required almost entirely based on handwork by 325 workers, with 140 steps involving 100 components during 5 days. The DANSHUI controller considers preparing a “flexible budget” whether it is more
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However, problem has occurred and the plant manager is considering using flexible budget to resolve the problem. Flexible budget is based upon different levels of activity. It is a very useful tool for comparing actual 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 between 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 observe 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 information is to assist DANSHUI in determining what may have gone right or wrong and to help the company in future

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