Danshui Plant No.2 Essay

Background Danshui was a contract manufacturer assembling electronic products in southern china. There were many manufacturers like Danshui in China assembling move for the companies wishing to save ride be. apple assure with Danshui to assemble 2.4 one million million iPhones in Plant No.2 with the expected high claim of this product in 2010. As a profit center, Plant No.2 was assign for each iPhone produced and shipped. The process of assembling was complex and required almost just now based on handwork for to a greater extent than 100 components. Danshui was confident of its workers to vary the new tasks and extra workers could be hired and trained as needed. The iPhone 4 was the most successful product of Apple as more than 1.7 million units were sold in the first 3 days they were launched. However, the congeal was run at a loss be buzz off of the underproduction.Consequently, the controller of this plant considered preparing the new cypher showing using a flexible budget system to signalise what went wrong in their operations that contribute to the performance problems. Problems and issues The plant has 2 big problems in terms of budgeting system and patience force. Firstly, they were in discriminatory performance by using normal budgeting system. They were unable to meet the Apple contract, which was shortage 10% from the 200,000 targeted units, resulting in the loss of $672,000 rather than the profit of $100,000. Actually, the plant was using the standard cost system to evaluate their performance, but it was non appropriate because the comparative quantities were different (180,000 and 200,000 units). That means the total standard costs would be overstated equated to the total actual costs. Consequently, the activities under the standard costing system were all overstated efficiency, leading to the unfavorable net income.Secondly, the drop of qualified labor force also contributed to this problem. As the assembly of iPhone 4 was ext remely complex, this would be higher chances of errors as the assembly process was handled by different workers with different skills and working styles. This testament indirectly cause a lot wastes in term of cost and time due to the disuse and the lack of skill of the workers. The burden of the supervisors essential be increased as they must learn before guiding the workers, who were almost semiskilled.Although the plant had increase the wages to 30%, they still could not increase the number of labor force needed, which also contributed to the underproduction. On the other hand, as the production guide was based on handwork, the damage of 1000 flash memories in facility was unavoidable. Thus, the actual output must be 181,000 units instead of 180,000 units in their report.The backup man of the wastage had increased the cost that had led to the unfavorable variance of $389,000. When the reckless jobs had been done, the workers must use the new tools and supplies, resulting i n the increase of the production costs and cause an unfavorable performance. Recommendations For the short term, I recommend Danshui to change from using the standard costing system to the flexible budget system for performance paygrade purpose. By using the flexible budget will help them to compare results with adjustable budget and the variance analysis will be more accurate. This system also proves the unfavorable performance caused by the variance from inconstant costs of $1,041,200, which can analyze and evaluate the weaknesses in controlling the variable cost which is flash memories, assembly and packaging expenses. For the long term period, they endure to overcome the disadvantages from the labor forces. First of all, the plant should improve their requital policy.I recommend that they should motivate workers by setting a basic salary and offering bonus if they complete their jobs well. Secondly, the plant should provide professional reproduction for labors. Through tra ining, the labors can learn how to handle with care on the parts to avoid the wastage that will happen. This solution also assists managers to place the correct labor at the correct assembly parts to reduce the labor hours but still save the materials. Thirdly, the plant could hire more skilled supervisors who will able to response to the problems arises and know how to motivate the labor to achieve the goal.