Danshui Plant No. 2 Essay

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1.0 INTRODUCTION Danshui Plant No. 2 in southern China has a one-year contract with Apple Inc. to assemble 2.4 million iPhones. In the first three months of the contract, the plant is unable to assemble as many phones as expected and is operating at a loss. The plant manager must analyze the budget and prepare a summary of monthly operations to help identify the source of performance problems. The plant has had difficulty hiring enough workers despite raising wages over 30%. In addition, the assembly process for an iPhone is complicated, with 140 steps involving over 100 components. The plant manager considers whether a flexible budget would be more useful for uncovering problems than the static budget currently being used. 2.0 MAIN ISSUE Danshui Plant manager Wentao Chen was anxious about the third month of a 12-month contract to assemble the Apple iPhone 4. The contract called for Danshui to assemble 2.4 million iPhone in the period of 1 June 2010 until 31 May 2011, but now in the third month of the contract, production was only 180,000 units per month. A preliminary report on August operations shows that revenue was below budget, material usage seems good and labor cost were above budget and this is because Danshui Plant No. 2 unable to produce 200,000 iPhone 4 units per month. 3.0 BUDGET A budget is a quantified financial plan for a forth coming accounting period. Budget is an organizational plan stated in monetary terms. It helps to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise. It also helps co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. 4.0 FLEXIBLE BUDGET A flexible budget

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