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Danshui Plant No.

2
Ankit Kumar Verma (2019PGP058)
Using the data given in Exhibit 1 & 2, estimate the break-even quantity for iPhone 4.

Production Cost
Bill of Materials (per unit)
Purchased Chips
Flash Memory (Samsung) $ 27.00
Application Processor (Samsung) $ 10.75
Chip for Phone Calls (Infinion) $ 14.05
Gyroscope (STMicroelectronics) $ 2.60
8 other purchased chips $ 70.95
Variable supplies and tools $ 62.54
Labour:
Assembly and Packing (per unit) $ 13.11
Shipping (per unit) $ 1.06
Production Cost/Unit (a) $ 202.06

Revenue (transfer from Shenzen) $ 4,12,40,000


No. of Units 2,00,000
Revenue/Unit (b) $ 206.20

Contribution/Unit (c)=b-a $ 4.14

Budgeted Fixed Overhead/Month


Factory Rent $ 4,00,000
Machine Depreciation $ 1,50,000
Utility Fees and Local Taxes $ 52,000
Supervision $ 1,27,000
Monthly Fixed Cost (d) $ 7,29,000

Breakeven Units (d/c) 1,76,087

Do you think Exhibit 3 adequately captures the variance? Why?

No. I don’t think that the exhibit 3 adequately captures variance because exhibit 3 compares the
budgeted and actual total cost to calculate the variance. The calculated variance is based on budgeted
and actual figures which do not have even the same number of units. This discrepancy in the number
of units makes the variance in exhibit 3 inaccurate.

For the correct estimate, the variance should be calculated as:

Variance= (Standard cost/unit-Actual cost/Unit)*Actual no. of units manufactured.