Danshui Plant No. 2 – Case

MAIN ISSUE
A part from reading the Danshui Plant No.2 case, we can see that there is no enough information to evaluate the performance of the pant for the first three contracts to assembly Apple iPhone 4. Analysis of the issue
To get a clear picture a flexible budget was prepared for the month end of August 2010. (Shown in the table below) From the flexible that is prepared it can seen the performance of Danshui Plant NO.2 is not good enough as what it suppose to be. The budget show that Danshui has unfavorable variance in the assembly the flash memory part, variable tools and supplies, assembly and packing, shipping nad the last one on the supervision. As for the flash memory it has been stated that Samsung had raised the price by $2.00 which had been cover by the Apple as their neutralized the profit which supposedly to give a favorable variance. But for the budget it can seen that the flash memory is showing an unfavorable variance. This is due to lack of skills during the installation the labour which had lead wastage as they need to replace the damage flash memory with the new one.

The replacement of the flash memory due wastage had increased the cost that is expected which had lead to unfavorable variance. Variable supplies and tools show an unfavorable variance has it has connection with installation of parts in the iPhone 4 especially on the flash memory installation part. .so when the labour done a wastage or reckless job during the installation of flash memory or any parts of iPhone 4, it will cause the labour to use a new tools and supplies. This is the main reason why variables supplies and tools had an unfavorable variance. The amount of unfavorable variance in the assembly and packing is vey significant. This is because installations of the I Phone 4 involve to many steps (140) and 325 labors within 5 days. This will a higher chances of error to occurred as the installation parts in the iPhone 4 is handle by the different individual who has different skill and type of working style. This will indirectly cause lot wastage in term of cost and time due careless and lack of skill of the labour.
The main root why shipping department has an unfavorable variance is due to lack of manpower. When there is lack of manpower with the expertise or skill that is needed, the departure and the arrival Apple iPhone 4 will be delay and according to schedule that has been planned. Therefore, there will an increment in the cost shipping which will lead to unfavorable variance. The last unfavorable variance is on the supervision. Due to changing from assembly of computer parts to the iPhone 4 parts, the supervisor have take some time to learn before they could guide the labour under the supervision. Not only that, the burden in the supervisor work aslo had increased has the assembly of the iPhone parts involve to many steps and individual. Thus, the company need increase the salary of supervisor which had because the amount of the supervision increased. But the increasement is not that significant compare increasement increase in the material parts.
DANSHUI PLANT NO.2
FLEXIBLE BUDGET FOR THE MONTH END OF AUGUST 2010
Budgeted($’0000)
Actual ($000)
variance
180000unit
180000unit
Revenue (41240000/200000) * 180 000
37116
37476
360 F
Variable cost:
Material:
Flash memory (180k*27)
4860
5249
(389 )U
Application Process(180k*10.75)
1935
1935

Chips -phone(180k*14.05)
2529
2529

Gyroscope(180k*2.60)
468
468

8 Other Chips (180k* 70.95)
12771
12643
128 F
Variable Supplies ; Tools(180k*62.54)
11257.2
11305
(47.8 )U
Total Material Cost
33820.2
34129
(308.8) U
Labour:
Assembly ; Packing ( 180k*13.11)
2359.8
3092
(732.2) U
Shipping (180k *1.06)
190.8
191
(0.2) U
Total Variable Cost
36370.8
37412
(1041.2) U
Fixed Cost:
Factory Rent
400
400

Machinery Deprecation
150
150

Utility Fees ; Tax
52
52

Supervision
127
134
(7) U
Total Fixed Cost
726
736
(7) U
Total Cost
37096.8
38148
(1051.2) U
Net Income
$ 19.20
$ (672.00)
(691.2) U
As the conclusion after a tare analysis is done we, found the labour is root cause why the budget is unfavorable and Danshui could meet the requirement. This because labour plays and important in from early process installation of iPhone 4 parts to the ending process which include the shipping. Thus, any wastage from the labour due to lack of skill or reckless will bring an impact on the budget. Solution and the justification for the solution that is suggested. 1. Reward to the labour.
When the company, give reward to the labour, they will feel that their are appreciated and valued for their contribution to the company. Other than that, giving reward also can be one of the motivations for the labour to work hard in order to meet up with the target of producing 200000unit Apple iPhone 4 in the next nine months. The type rewards that can give to the labour are coupon for shopping, free trip, free lunch coupon, certificates and gifts. 2. Training
The training that is given to the labour will improve the skills of the labour especially on the assembly the parts of Apple iPhone 4 since it involve a lot of steps, individual and time. Through training, also the labour can learn on how to handle with care on the pars that sensitive during the installation specially the flash memory and this avoid the wastage that will occurred.
Not only, during the training process, can the supervisor or the manger identify the potential and the specialty of the labour on assembly the parts. This will indirectly help the management to place the correct labour at the correct assembly parts in order to fasten up the process, save the time and avoid wastage. 3. Hired skilled supervisor.
The skilled supervisor will have enough experience to guide the labour to be on the track in order to meet the target to produce 200000 unit of Apple iPhone4. The supervisor will able to response to the problem that arises without waiting for the plant manager. The skilled supervisor also will know how to motivate the labour to achieve the target. 4. Chen(plant manager) should do a surprise visit
This will make the labour to be alert all the time and do their work with a minimum error and in time. Chen can get feedback and evaluate performance more accurately as he knows what is really going on. This surprise visit also can build a relationship between Chen and the labour. It’s also will become a motivation to the labour to work hard as they now the management is concern regarding their needs and welfare.
Conclusion
Training is the best solution to overcome the labour problem and 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 labour, Danshui can ask Apple to contribute or increasement 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 planed to ensure the success of the solution that had been choose is ‘on job training’. ‘On Job Training ‘ means the labour 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 labour will corrected on the spot and it will reduce the chances of error from occurring as the labour will be used their job quickly and their mistake is corrected faster.

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