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1.1 Demonstrate and apply integrated and advanced discipline and professional practice knowledge, including knowledge of relevant

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  • Post Date 2018-11-06T11:17:11+00:00
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1.1 Demonstrate and apply integrated and advanced discipline and professional practice knowledge, including knowledge of relevant research principles and methods.

School of Accountancy

 

 

AYN414 Cost and Management Accounting

ASSESSMENT ITEM 2: Written Assignment

(Weighting Total: 20%)          

Submission:

Length:                                                                                 1,000 words (excluding references)

Team or Individual:                                                        Individual

This assessment item assesses the following learning outcomes:

Knowledge and Technical Skills (KS)
1.1 Demonstrate and apply integrated and advanced discipline and professional practice knowledge, including knowledge of relevant research principles and methods.

Higher Order Thinking Skills (HO)
2.1 Critically investigate real world business issues and problems drawing on analysis, evaluation and synthesis of discipline knowledge, including theory and practice.

Professional Communication (PC)
3.1 Use information literacy skills and communicate effectively and professionally in written forms and using media appropriate for diverse purposes, contexts and audiences.

Teamwork & Self (TS)

4.1 Exercise self-reflection and accountability in applying knowledge and skills for own learning and effective practices

Apple & Foxconn

You are a management accounting working at Apple.  Your manager, Lucy Zhang, has asked you to gather information on the profitability of one of the factories that manufacture iPhones.  Foxconn is considering the financial implications of moving the manufacture and assembly from one of its small factories in China to the U.S.  The management of Apple is having a meeting with Foxconn – Apple’s current contracted manufacturer in one week and they need some high-level numbers to take to the meeting on the financial consequences of moving the manufacturing and assembly process to the U.S state of Wisconsin.   You have been given some information from Foxconn on the costs of manufacture/assembly but this is not in the detail that you would have preferred. Your boss can’t wait for the detailed costs from Foxconn and needs some general figures to guide their initial discussions and has told you to make your own judgements where you are missing figures.  She has also said these costs are from a small Chinese factory that has just started manufacturing in the last couple of months. You will have to make some professional judgements where you do not have all the information you need. 

Foxconn Technology Group (FTG) is a Taiwanese multinational company that manufactures electronic products and is contracted by Apple to manufacture many of its products such as the iPhone, and iPad.   Foxconn has factories in Asia, Brazil, Europe, and Mexico and together these factories produce approximately 40 percent of the consumer electronics products sold worldwide.  Most of these factories are in China where Foxconn currently employs over a million people. ‘Foxconn`s largest factory worldwide is in Longhua Town, Shenzhen, where hundreds of thousands of workers (varying counts include 230,000, 300,000, and 450,000) are employed at the Longhua Science & Technology Park, a walled campus sometimes referred to as “Foxconn City”. Covering about 1.16 square miles (3 square km), it includes 15 factories, worker dormitories, 4 swimming pools, a fire brigade, its own television network (Foxconn TV), and a city centre with a grocery store, bank, restaurants, bookstore, and hospital. While some workers live in surrounding towns and villages, others live and work inside the complex; a quarter of the employees live in the dormitories, and many of them work up to 12 hours a day for 6 days each week’[1].

Labour costs in China are much cheaper than many other countries although they have been recently increasing, with the average hourly wages around $3.60 in 2016 an increase in 64% since 2011.  These hourly rates are still ‘more than five times hourly manufacturing wages in India, and [are] more on par with countries such as Portugal and South Africa’[2].

Key to the success of Apple is a business model that combines a luxury brand marketing and pricing strategy with low-cost production and assembly through outsourcing the manufacturing component of the value chain. This has been a very successful strategy that has ensured Apple’s profits have continued to increase across its product range.

Apple has used Foxconn in China to manufacture its products including its most profitable product- the iPhone.  Recent iPhone’s assembled by Foxconn China include:

  • The iPhone 5s
  • The iPhone 6
  • The iPhone 6 Plus.

Details relating to the assembly costs of Apple’s three iPhones are as follows:

Figure 1: Summary of iPhone costs

Source: teardown.com

iPhone 5s

The 5s comes with a touchscreen display it is powered by 1.3GHz dual-core Apple A7 (64-bit ARMv8) processor and has two cameras - a primary camera on the rear and a secondary camera for selfies.  The Apple iPhone 5s runs iOS 7 software and is powered by a non-removable battery. Foxconn assembles the iPhone 5s from materials provided by other suppliers.  The main components include the display/touch screen, memory, camera and battery (there are other misc components). 

The production process involves machine automation (robots manufacture the external case) and manual workers who assemble the rest of the phone and test it is working.  The robot is operated by a machine operator and it takes on average 10 minutes of machine time to make one base of the iPhone 5s. The phone then moves to assembly where the factory assembly workers complete the assembly adding components such as the memory, camera battery and the display/touch screen and finally it is tested.

iPhone 6

The iPhone 6 has a larger 4.7” HD screen and a new A8 chip processor and new isight camera. Production follows a similar process as for the 5s.  The production process involves machine automation (robots manufacture the slimline external case) and manual workers who assemble the rest of the phone and test it is working.  The robot is operated by a machine operator and it takes on average 20 minutes for the robot to make the base of one iPhone6. The phone then moves to assembly where the factory assembly workers complete the assembly adding components such as the memory, camera battery and the display/touch screen and finally it is tested.

The iPhone 6 plus

The iPhone 6 plus has a larger again 5.5” HD screen and the new A8 chip processor.  The camera is 8 megapixels.  Production follows a similar process as for the iPhone 6.  The production process involves machine automation (robots manufacture the slimline external case) and manual workers who assemble the rest of the phone and test it is working.  The robot is operated by a machine operator and it takes on average 30 minutes for the robot to make the base of one iPhone6. The phone then moves to assembly where the factory assembly workers complete the assembly adding components such as the memory, camera battery and the display/touch screen and finally it is tested.

During the 2013‑14 financial year, the price Foxconn is paid for manufacturing each iPhone is below:

-          the iPhone 5s was $240;

-          the iPhone 6 was $257; and

-          the iPhone 6 plus was $272.

Additional Accounting information

After a meeting with your boss Lucy Zhang, you have obtained the following information regarding for the year ending 30 June 2014.

Revenue

$

iPhone 5s

    1,541,520

 

iPhone 6

1,233,857

iPhone 6plus

1,061,616

       

 

Number of phones manufactured (budget)

 

iPhone 5s

6,420

iPhone 6

4,800

iPhone 6plus

3,900

 

Number of phones manufactured (actual)

 

iPhone 5s

6,440

iPhone 6

4,840

iPhone 6plus

3,840

 


Raw material costs

 

 

 

A breakdown of the raw material costs for each phone has been given in Figure 1.  Some of these are direct and some might be better classified as indirect.  You will need to decide how to break up these costs.

 

 

Labour costs

$ per hour

Machine Operators

Factory Assembly Line

3.90

3.69

Total number of machine hours

Machine hours (budgeted and actual)

iPhone 5s

1,070

iPhone 6

1,600

iPhone 6plus

1,950

The following information relates to other costs incurred by Foxconn for the year ended 30 June 2014 (these costs cannot be traced easily to any particular iphone:

 

$

$

 

Budget

Actual

Accounting fees

1,600

1,640

Advertising costs

4,000

3,300

Consumables – production facility

34,000

30,800

Depreciation – robot machinery

3,000

3,000

Depreciation – office equipment

3,500

3,500

Depreciation – office furniture

1,600

1,600

Insurance

3,500

3,500

Robot design costs

40,000

62,000

Rental – office

15,000

15,000

Rental – production facility

18,000

18,000

Research and development - robots

15,700

17,800

Salaries – Administrative staff

25,000

25,000

Salaries – Executive management

60,000

60,000

Salaries – Production supervisor

30,000

30,000

Salaries – Factory quality inspector

28,000

28,000

Other expenses

4,850

4,970

Utilities – water and electricity

10,425

14,250

Warranty costs

3,950

6,80

At a brief meeting to discuss the project, Lucy was able to provide clarification on some of these costs:

  1. The insurance cost relates to all of Foxconn’s equipment. Based on the sum insured, 60% of this relates to production equipment, with the remaining 40% for office equipment and furniture;
  2. Depreciation is calculated on a straight line basis. All equipment, machinery and furniture is expected to have a useful life of seven years;
  3. All salary employees (not manufacturing workers) are paid a fixed amount each month. These are based on permanent contractual agreements that cannot be changed in the short run;
  4. Utility costs (for water and electricity) are for the company as a whole. However, most of this (75%) relates to the production processes and varies in proportion with the number of iPhones produced. The remaining 25% is for the administration and selling areas, and do not vary with the level of production;
  5. Warranty costs are related to the number of iPhones returned by Apple due to faulty production;
  6. There was no Finished Goods inventory at the beginning of the financial year, and no Work-in-Process at either the beginning or the end of the financial year;
  7. ‘Other expenses’ relates entirely to various minor costs incurred in administration, and do not vary with the level of production. Consumables of the production facility however, do vary with the level of production;
  8. The company applies manufacturing overheads to products using a predetermined overhead rate that was calculated from budgeted manufacturing overheads and using budgeted machine hours as the cost driver. Although actual cost information for the whole year is now available, Lucy would like you to use the same method for applying manufacturing overheads as she believes the budgeted figures are more relevant for the forthcoming year;
  9. In your calculations you can write-off any over or under-applied manufacturing overhead as a cost of goods sold. This amount does not need to be allocated to the three products.

TASK – Lucy Zhang your boss at Apple has asked you to provide her with a report on Foxconn’s current business profitability and improvement ideas.  You are required to:

PART A (10 marks)

(1)    Analyse the profitability of the three products. In order to do this you will need to:

  1. Calculate the total gross profit for EACH phone then the total gross profit of the three products. Indicate which product is the most profitable;
  1. Calculate the contribution margin per unit for each of the three;

6 marks

(2)    Analyse the profitability of the Foxconn factory. In order to do this you will need to:

  1. Calculate the break-even point in units and dollars, assuming the current sales mix;
  1. Calculate the number of phones that need to be sold in order to achieve a target operating profit for Foxconn of $150,000 (assuming the current sales mix);

4 marks

PART B    (5 marks)

In July 2017 Foxconn announced it would build a factory in Wisconsin, United States to produce flat-screen displays. It is now considering whether it should also move some or all of its iPhone manufacturing to the US. You need to write a report that will provide an answer to the following questions:

(1)    Should Foxconn move some or all of its iPhone manufacture to the United States?  Consider the costs and benefits of moving manufacturing from China to the US. These will only be estimates of the costs and benefits for Foxconn/Apple of doing this. You can rely on the figures you have calculated as the basis of this report.

(2)    What other qualitative factors are going to be important in making this decision? You should also consider what changes are being made in manufacturing and what implications this will have on future manufacturing costs for iPhones. 

References

You should reference any textbooks, websites, newspapers or reports that you use to answer these questions.  Check the correct referencing to use as outlined by QUT’s citewrite guide.  http://www.citewrite.qut.edu.au/

Presentation of Report (Part B)

You will need to consider how you present this report as you will be marked on the presentation of your report.  Part A should be answered using excel (with workings), and Part B and C can be answered in any format that you decide. 

5 marks

PART C (Individual submission)                  (5 marks)

A successful accounting professional uses the idea of self-reflection to improve their skills in the workplace.  Reflecting on your experience of completing this assignment, write a self-reflection that puts into writing your learning experiences.  You should think about the following questions to help you in this task:

  1. What processes did you use to complete the assignment?  That is, HOW did you go about answering these questions?
  1. What exactly helped or got in the way of you being able to complete your assignment?

For example, did you feel like you had a sound knowledge base of the key topics before your started or did this assignment show you how much you had not grasped?

  1. What parts really presented problems for you? For example, did you get really stuck – what did you do at these times? For example, sought help from fellow students/study group, looked at different text books? (while this is an individual assignment and your final work must be your own you can discuss your problems/ideas with classmates however make sure you do NOT hand in anything other than your own work).
  1. How much time did you take to complete the assignment – was this more or less than you expected? Has your time management for this assignment been successful?  How could you improve next time?
  1. What have you learnt doing this assignment and what would you do differently next time?

5 marks

TOTAL MARKS : 20 marks

References:

Horngren, C.T., Datar, S.M., Rajan, M.V., Wynder, M., Maguire, W. & Tan, R. (2014). Cost Accounting: A Managerial Emphasis (2nd ed.). Frenchs Forest, NSW: Pearson Australia.


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