Vietnam’s jewelry manufacturing industry the problem of cost management and profit margin in sakura ltd company

Company Instructor:Dr.PhamPhuQuocSt udent:NguyenDongHaiMBA Class5.2... UNIVERSITYOFECONOMICS HOCHIMINHCITYINTERNATIONALSCHOOL OFBUSINESSISB Vietnam’sJewelrymanufacturingindustry:the prob

February06, 2017

costmanagementandprofitmargininSakuraLtd Company

Instructor:Dr.PhamPhuQuocSt udent:NguyenDongHaiMBA

Class5.2

UNIVERSITYOFECONOMICS HO

CHIMINHCITYINTERNATIONALSCHOOL

OFBUSINESS(ISB)

Vietnam’sJewelrymanufacturingindustry:the problemof costmanagementandprofitmargininSakuraLtd.Company

Instructor:Dr.PhamPhuQuocSt udent:NguyenDongHaiMBA

Class5.2

Industrial overviewandCompanybackground 3

Industrial overview 3

Companybackground 5

ProblemDefinition 6

Problemsfindingprocess 6

Company’sSymptoms 7

Problemidentification 11

Industryandcompetitorscondition 15

Possiblereasonsof problem 16

DesignSolutionsandSuggestion 22

Actions Planning 28

SupportingInformation 1 SakuraIncomeStatementof2013-2014-2015 30

2 PNJIncomeStatement2013-2014-2015 33

3 Data collected fromcompetitors(unofficial) 39

4 aComparisonbetweenSellingPrice,CostofProductionandRequiredPriceofsomeR i n g mode ls 40 4 b ComparisonbetweenSellingPrice,CostofProductionandRequiredPriceofsomeEaringmodel s 41

4 c ComparisonbetweenSellingPrice,CostofProductionandRequiredPriceofsomeBraceletmod els 42

4 dComparisonbetweenSellingPrice,CostofProductionandRequiredPriceofsomePendantmod

5 InterviewFramework 44

6 Transcript andResultofinterview 46

7 Data collected from276productsofSakuraJewelry 48

8 CompanyWorkingCardand SuggestingCostingCard 54

9 CollectedPreciousstonepriceduringMay2016 toDecember 2016 57

References

ThejewelrydivisionofSakuraPlasticCompanyspecializedinmassmanufacturinghighquality goldenjewelrybasedonthecombinationofhightechnologymachines,savingmaterialcostbyreusing

ctssince2013inVietnamalsoflavorstheestablishmentofthisjewelrydivision The symbolforthesuc cessofthisdivisionisthec o n t i n u o u s l y increaseinrevenueandtheproductofSakuraJewelryareh ighlypraisedbym a n y ofitscustomers Ironically, itisturnedoutthatthedivisionsufferedperman entlosssincetheveryfirstdayofbusiness

Theproblemofthisdivisionwasrevealedasitsprofitmarginusuallynegativeduringi t s lifeti

andexpenseswererealizedandallocatedtotheresponsibledepartment,i n thiscasethejewelrydivisi on;thesellingpriceofeachproductdoesnotreflectingitscost,t h a t leadtomanyproductweresoldatp ricelowerthantheiractualcosts;andfinally,thelackingoftimeandqualityinformationforthedecision

yasitisindeedthreateningthesurvivalofthisdivision

Thefirstsolutionisrestructuringthecompanyaccountingdepartmentwithmorededicatedacc ountants Their missioniscollectingandaccounting(especiallyallocating)allt h e cost,expensesa ndrevenueinthereal-

timebasisandprovidingallrequiredinformationf o r decisionmaking.Inthemeantime,investing ingoodEnterpriseResourcesPlanning(ERP)programisanotherwisemovetosimplifytheaccountin gprocessandunitingallthec o m p a n y activitieswiththelesseffort.Baseontheresultoftheprevio ussteps,the

2 managementteamwillhaveallrequiredinformationfordecisionmaking,especiallypricingstrategy

ThejewelrymanufacturingindustryinVietnamisstillconsideredas“amystery”,whichthefulls caleandpotential ofthis industryis onlybasedonfromtheassumption

orestimationofexpertsandauthoritiesratherthanreliablestatisticaldata The mainpoweroft h e m arketiscalled“chành”,themiddlemanwhobuysjewelryfromsmallmanufacturersandresellstoothe

r retailers Despite therapiddevelopment

oftechnology,manyofVietnamj e w e l r y manufacturersarestillheavilyreliedon

themanualprocessand laborintensives In fact,most of

thesemanufacturersarefamilybasedcompanythatheavilyrelatedto

theirbesttoimplementinghightechnologyto thisindustry,which the mostwell-knowis

providingprocessingservicesand qualityplasticproducts

jewelryproduction,in 2013, thecompanyhasestablisheditsJewelryDivision whichfocuseson massp r o d u c i n g bymachinesratherthan laborintensiveasmanytraditional

ofhightechnology,skillfulemployeesandfavorable marketconditionseemsto

beaguaranteedsuccessforthis division However, it

isturnedoutthattheactualproductionofthisdivision did notmeettheexpectation The thesis will help thisd i v i s i o n byfindingthe trueproblem,its possiblereasonandsuggestingsolution to boost thed i v i s i o n a s i t wassupportedto be

IndustryoverviewandCompanybackground Industryoverview

4 ThedemandforgoldinVietnamexpandedby31%year-on-yearsin Q4/2015

(to3 9tones),yieldinga25%increaseinannualdemand(to 15 6tones)

andcontinuetogrow(1) T h i s i s thankedto thesteepdropinVietnamgoldpricein 2015,

combinedwithlowerinflationandstrongereconomicgrowth,improved

affordabilityamongthegold-consumingp o p u l a t i o n , e s p e c i a l l y in

jewelryform *At themoment,thereare still not any formals t a t i s t i c s d a t a

o f thisindustryfromanyauthorizedagencyor thegovernmentso themostreliableis from

Table1 showthat in 2015,Vietnamhadbecomeoneof

themostattractivemarketsforgoldenjewelryproducts with

theconsumptionof15.6tonesofgold.Thisnumberisgreater

5 than

SakuraLimitedCompanyis a Vietnamese companythat specialized inplastic

injectionm o l d i n g services In 2013, theJewelrydivision

wasestablishedinordertoseizetheo p p o r t u n i t y of theraisingdemandforjewelryproduct of Vietnam At this moment,thed i v i s i o n have102employeeswith the abilityto

providearound1,700-1,900taelofgoldperm o n t h This is

veryimpressiveasthenormalcompanywithsimilarsizecouldproduce1,300-1 , 5 0 0 taelspermonth

Thetael is thetraditionaltrading unit inVietnamjewelrymarket;this isan

unfairsystemthatexistsonly tocreateadvantageto themiddle man Onetaelequal 37 5 gram ofg o l d Normally,companypricetheir product based

oneachindividualproductlikering,earrings…but the “chành” alsocountfor

howmuchpertael.Theydo notpaymuchattentionto theprice whentheyput in order, unless

someproductshavesignificant

higherprice.Whenthefinalproductsweredelivered,theyrecalculatedtheaveragepriceintael

unit Suchas thetotalpackagehas 100productswith totalofVND60millionand equal47 5t a e l s ;

i t s averagepricepertael is VND1,265,823/taels If theaveragepricepertael seems

tob e higher,theydesperatelynegotiateorevenreturn theproducts This in unofficial but

thecollecteddata show that theaveragepriceforhighestquality is aroundVND1 5-2million,a n d

t h e lowestis aroundVND 0 8 million per tael, but it is based on thesole

decisionofthem Finally,theyalso required taxinvoicewith thedetailof price/tael, not

theprice/products Thedouble pricing standard wasusedonly

tomakeconfusionandcreatebetterprofit of “chành”sothey neverwant to change –This part is thesummarizeconclusionof manysmall manufacturers This isunofficialbut during

theintaketimewithSakuraJewelrydivision,Icouldseethis hugeeffectto

thiscompanypricingstrategy

Fromthebeginning,thereshould bequestionabout thereasonfor

aplasticcompanyi n v e s t i n g in jewelrymanufacturing In fact,thanked to

thespecialtyofSakurainplastic,ithelpsspeedup the manufacturingprocessof jewelryfrom3D

preciseplasticm o l d s technology,itallowsSakurareachto

fter-casting-productofSakurarequiredl e s s manualwork,it

Despiteof thesuccessofthis companyonproducing, thefinancialreport

carefullystudythecompanyyear-

endreport,theco-ownerandCFOofthiscompany,Mr Nguyen ThanhNhan,foundthatthereasonlie onthe

JewelryDivision.Unlikethe rapidlyincreaseofitsrevenue,this division

7 seemstill not beabletoeffectivelymanageits cost,thatheavilyaffecttheirabilitytogenerate

profit The thesis will beaimtoidentifytheproblemsof this division,

thecause-effectrelationshipand provide some

possiblesolutionandsuggestionforthestart-upD i v i s i o n

Problemdefinition Problemsfindingprocess

Inorder to identifythesecompanyproblems,thesefollowingsteps will beexecuted:

companyfinancial,accountingdataandthe industry

Mr Nguyen Thanh Danh, CEO More

in-depthon-the-fieldinterviewwithotherrelatedemployeesalso beexecutedtof u l l y understand the problem.

- Lackingof timeandqualityinformationfordecision makingprocess, this

makethec o m p a n y sometimesellproductat theprice lowerthan its cost

theaccounting T h e successof thisdivisionisthankedto theabilityofcatchingtheraising demandof

Forthe wholecompany,operatingrevenuehad rapidlyincreasedfrom VND

25 35b i l l i o n i n 2 0 1 3 t o VND48 19billion in 2014andVND97 09billion in

VND40 61 billionandVND6 62billionrespectively This lead to

theresultofoperatingprofitdrops79.59% fromVND0.67billioni n 2 0 1 3

t o VND0.14billion in 2014.In2015, thesituationstillnotimprovementwith thecostofgoodsold

10 49billion,reducingtheEBITto onlyVND0 263 billion Details could befoundon

table2 below.

Items 2013(billionVND) 2014(billionVND) Changes(2013-2014) 2015(billionVND) Changes(2014-2015)

Company Jewelry Company Jewelry Company Jewelry Company Jewelry Company Jewelry

Forthe jewelrydivision, itsrevenue hasquicklyraisefromVND5 07 billion in 2013

toVND17 35billion in 2014, makingit

thegreatestincreasingrateat242 27% However, in2 0 1 5 , i t s revenue couldnotmaintainthis amazingrateandonlyup 31 13% In the mean time,t h e costofgoodssold has

19 52billion in 2014 This trendcontinuedin2015 with thecostofgoodsoldraisedtoVND

26 06billion And otherexpensesfromselling,administrating,etc …alsorisefromVND

1 23billion in 2013 toVND 1 97billion

Moreover,the mostserioussymptomisthattheprofitmarginof this division is

Furthermore,Ms Ngan, thechiefaccountant,alsopointedthat

theDirectorofJewelryd i v i s i o n d o n o t cooperatedwithaccounting departmentand thedivisionoperatingon its ownor,byher words“without anyfinancialsenses”

Duringthetime ofmeeting,alltheresponsiblememberswereunableto

providedetailfinancialinformationrelated toactivitiesofthis

toogeneralfordecisionm a k i n g process The chiefaccountantrevealedthat allthese

timeandm o n e y forthemto extract datafromthe companydatabaseandno onecould besurethat thisinformationiseithercorrector useful

As thematteroffact,themanagementteamtold that theyusethelastyearinformationo n

t h e i r financialreportwith someestimation.Theideaisthatwith theestimationofcostand

12 expenses, theyknow their cost so that theywillhavetherequire revenue As

long aseachm o n t h revenueishigherthan its cost, the divisionshould

behavingenjoyableprofit

However,thisestimationdiffersfrom oneto another

month,Mr Nhan guesteditaround1 4-1 6billion/month,Mr Danh calculatedit should be no

estimation In fact,thenumberafterwem a n u a l l y separateareVND1 79

not justhigherthan theirexpectation but themostimportantis therevenueseemcould not

thedatabetweenplasticandjewelry And the resultshowed that the doubt ofMr Nhan

isreasonableasthe jewelrydivision isoperatingin loss.In2013, theJewelrydivision contributed

ofVND1 8billion In 2014, with 36% oftotalrevenue and45 5% oftotalcost

billion.Thenumberof

2015 still not shows anybrightersignwithjewelrydivision contributed

23 43%totalrevenue,taken 30 19%ofthewholecostsandaccountedforVND 3 82 billion

losses Further detailcould befoundonSupporting Information1,

thecollecteddatafromfinancialreport oft h e company

Moreover,thegrossprofitmarginof thedivision in 2013 is-11 2%,-12 5%for2014andin

2015, itcontinuetolowerto-12 7% As grossprofitmarginis the quickindicatoroft h e

a b i l i t y ofgenerateprofitfromthe companymain activity(2), it should

beapositiven u m b e r oratleast show thepositiveimprovementtrend The negativeratio of

theJewelryD i v i s i o n andthedowntrendsignalsthat thereis aproblemin thebasicactivityof thed i v i s i o n thatthedivision’srevenue couldnot cover itsoperation If this situation

continues,t h e survivaloftheJewelrydivisionindeedisthreatened

Weygandtetal (3) statedthatforbothmanufacturingand

serviceprovidingcompany,t h e y mustkeeptrackofthecostof itsproduct,serviceinorderto

meaningfullycomparethe companyto competitors, toaverageindustryandto its

pastperformance The formulaof thisratiois

(SaleRevenue–Cost ofGoodsSold) GrossProfitMargin=

Salerevenue.

Surprisingly,the onewho inchargedofthisdivision,Mr Ngoc was

notimpressedbyt h e finding He claimedthat this is not aproblemforjewelrydivision becauseit isnormalfornew start-upcompanyand themarketis not infavorforthe division during such

and“thef i n d i n g is forthewholeyearbutweshould look closertoeachmonth

toseetheimprovemento f thisdivision”

Inorder to pursuethebroadof thiscompany,detailinformationof

Jewelrydivisionactivitiesbasedoneachmonthsincethe

veryfirstbusinessdaywasextractedandpresentedi n t h e followingtable.

Details Revenue ( in Million Dong) Total Quantity sale (In Tael)

Average

2015 Price/Tael

Cost and Expenses (in Million Dong)

Gross Profit margin

Revenue ( in Million Dong) Total Quantity sale (In Tael)

Average 2014 Price/Tael

Cost and Expenses (in Million Dong)

Gross Profit margin

Revenue ( in Million Dong) Total Quantity sale (In Tael)

Average 2013 Price/Tael

Cost and Expenses (in Million Dong)

Gross Profit margin

15

1,793.63 1,324.45 1,465.19 1,802.39 1,946.05 1,614.79 2,002.99 2,121.63 1,943.83 2,086.09 2,290.33 2,358.49 22,749.87 1,371.67 1,068.55 1,155.02 1,453.80 1,354.91 1,354.26 1,499.28 1,566.85 1,698.67 1,697.85 1,760.85 1,828.47 17,810.18

2,080.88 1,746.83 1,828.63 2,083.76 1,682.01 1,941.77 2,176.16 2,162.71 2,436.25 2,523.06 2,489.10 2,909.42 26,060.56 -13.80% -24.18% -19.87% -13.50% 15.70% -16.84% -7.96% -1.90% -20.21% -17.32% -7.99% -18.94% -12.70%

1,176.29 1,122.05 1,104.95 1,293.13 1,092.32 1,241.25 1,559.62 1,429.75 1,662.05 1,757.52 1,864.89 2,045.70 17,349.52 991.41 970.22 1,010.64 1,052.75 1,032.31 1,026.62 1,189.91 1,211.49 1,261.13 1,344.93 1,473.97 1,644.34 14,209.70

1,409.04 1,458.45 1,369.90 1,561.03 1,260.06 1,454.65 1,630.25 1,620.17 1,825.09 1,890.12 1,864.68 2,179.56 19,523.00 -19.79% -29.98% -23.98% -20.72% -15.36% -17.19% -4.53% -13.32% -9.81% -7.54% 0.01% -6.54% -12.53%

43.20 215.92 332.46 587.05 671.88 557.05 1,237.88 1,423.56 5,069.00 42.21 206.70 294.08 477.92 634.97 660.73 994.44 1,178.24 4,499.29

54.81 281.20 431.08 511.99 693.31 851.86 1,212.10 1,605.24 5,641.60 -26.88% -30.23% -29.67% 12.79% -3.19% -52.92% 2.08% -12.76% -11.30%

Table 3:Monthly financialinformation ofJewelryDivisionfrom 2013 to 2015.

Thetableshowedthatthereis notanyreliablesignal orsymptomthat could support

tot h e claimofthedirectorthat “thedivisionprofitisimproving” Despite afew

monthsreducing,thedivision’srevenueshow

thetrendofcontinuouslyincreasesince2013 It alsoprovedthattheclaimof

lowmarketconditionisquestionable Technically, thetablerevealedt h a t t h e l o s s

o f t h i s divisionmaybedueto thecostofproductionandoperationincreasemoret h a n

thisproblem,furtherinvestigationon the competitor,marketwill beexecuted

Industryandcompetitorscondition

Unlike Sakura,competitorsstill enjoydesirable profitrateduringthis period oftime

Thefirstto mention is thegiantinVietnamjewelrymanufacturingindustry,

Table4:Keyinformation of Phu NhuanJewelryCompany

Table4show that PNJwasverygoodin maintainshighrevenueduring2013-2015

withl i t t l e fluctuation.Usingrevenueof 2013asbase,revenueof 2014haddowned 4.66%and

2015 Therefore, comparingtoPNJ, theratioofSakuraissignificanthigherwith111 24%in 2013and112 51%in 2014

Thegrossprofitmarginratio showforeachofVND 100 ofsalePNJmadein

16.65 65 in 2015 As the Jewelrydivision ofSakura,therespective ratiois-11 24%in 2013a n d -11 11%in 2014 It is definitelynot agoodbusiness at all

Comparingbetweenthenewstart-upasSakurawith“thelongtimegiant”in

industryasP N J maybeviewedasinappropriate However, this is the onlyreliablesource

asPNJhadlistedin theHochiminhStockExchangeandtheirfinancialreports

areauditedregularly We alsogatheredinformationfromsimilar sizecompetitorsin

themarketbytalkingwith some

incharged-personofthiscompany In fact,theintelligentinformationis not asreliableasPNJb u t

i t couldbeviewedasindicatorandreferencetofurtherunderstand

FromthedataofS u p p o r t i n g Information3, itcouldbeseethatfor

similarcompanyint h e industry,theirgrossprofitmarginarerangedfrom 10% to

theWorldGoldCouncilstatedthatthe demandofgoldenjewelryofVietnam has

steadyincreasedduring2013-2015, it is proventhattheproblemofSakurais unlikelydueto

companysufferedlossandclosingout but it is not acommonsituationofthew h o l e industry

Possiblereasonsofproblem

LOW/NEGATIVE PROFIT MARGIN NEGATIVE PROFIT

Afterthemeetingandin-depthinterviewwith

theCEO,CFO,ChiefAccountant,Directorofjewelrydivision, thedetailsresultof theinterviewis summarized inSupportingInformation6 From that result,theconcisecause-effecttreeof this divisionproblemisgeneratedinFigure1 below:

Figure1.CAUSE-EFFECT TREE

Baseon

theoryanddatacollectedfromcompetitors,themainproblemofSakura’J e w e l r y division is theydonot haveeffectivecostmanagementmethod thatleadtooperationw i t h negative

profitmargin.This iscausedbythreemain problems:

somecostande x p e n s e s relatedto this

divisionoperation,suchasdepreciationofmachine,locationfee,transportation,delivery…arenot realizedbytheresponsibleperson In thiscase,themaninchargeofthis division, Mr Ngoc

does not realizetheexistenceofthese costs ofhis

n o w allofthese”and“myjob is help thewholecompany,eachdivision should know

company It meanstheDivisionhasfailedallthree importantobjectivesasdefinedbyHansen

AsTiwari etal (5)pointed out, cost and qualityareinfluentialfactorsofsuccessin

theservice industry In his book,Hansenetal(4)stated

thatforpricingdecision,productdecisionandstrategicprofitabilityanalysis,alltraceablecostneedto beassigningto theproduct This meanthecost is not just onlythemanufacturing costbut also thenon-productioncostthatrelatedto

theproductssuchas:ResearchandDevelopmentcost,Administrative

cost,sellingcost,etc Atkinson et al(6) suggestedmanufacturingdivision

couldbeconsideringasacostcenter,in order to beconcentratedon its

cost Furthermore, thesecondproblemalsorelated to thismisunderstanding

customer, withoutt h e meaningof its cost Thatleadto theproblemas theymaysell

someproductthatits pricecouldnotcoverallof itscost Themostterriblethingisthattheydo not

Inorder toconfirmthis is the

trueproblemofthecompany,wetrytoinvestigatefurthertherevenue,costandgrossprofitmarginsin cethe timethe

Information4 It showsthat thedivisionhastheirgoodsellrightat the month

itstartdoingbusiness They havegoodsaleteamthathelp to quicklyraise thesale

onDecember,2 0 1 4 The averagesalepriceforeachtaelof product also pointed out that

theincreaseinrevenueis thanked to theincreasequantityofsale

However,thetablealsoshows

theproblemthattheircostincreasingwithhigherspeedt h a n theirrevenueorcostofeachmonth usuallyover therevenue As wesuspected, theclaimo f Mr Ngoc ,Directorof

JewelryDivision,that“thecostwassignificanthigh duringtheendo f year” and“othermonths thedivision is doingfine”wasproven not correct It iseasyto seet h a t foreverymonth the division doingbusiness;itsgrossprofitmarginis usuallynegative

Bulak etal(7) statedthatformanufacturingcompany,costadvantageis oneoftwo

ofitsmanagementteam,notont h e financialdata:Thiscompanyhiresaservices companyto do

therequirementdatafordecisionmakingeffectively As the mention in thepreviouspart,in

thisindustry,thereis ad o u b l e pricingstandard

thatwasmakingtocreateconfusionandinequality It means

themanagementteamnegotiatepricewithout

Asmallsample of276 jewelrymodelshasbeen studied inorderto fullyunderstand

thisseriousproblem.Dataofthissample couldbe found onTable5below.

Row Labels Average ofAverage of Average ofAverage of Average of Cost of Production Average of Discounted Price (assume 5%)

434,511.90 427,386.90

430,553.57 430,553.57 421,053.57

441,636.90

444,803.57 444,803.57 435,303.57

172,583.33 167,833.33

171,000.00 171,000.00 161,500.00

177,333.33

180,500.00 180,500.00 171,000.00

208,472.22 203,722.22

206,888.89 206,888.89 197,388.89

213,222.22

216,388.89 216,388.89 206,888.89

175,976.19 171,226.19

174,392.86 174,392.86 164,892.86

180,726.19

183,892.86 183,892.86 174,392.86

260,355.07

Average of Loss/Profit Margin (VND/pcs)

(32,764.32) (34,228.92)

(48,233.56) (31,863.74) (22,589.46)

(31,299.72)

(44,919.92) (29,199.26) (19,779.98)

(551.55) (2,823.46)

(6,989.65) 311.85 (1,792.59)

1,720.36

(490.77) 4,148.15 1,503.70

(18,352.34) (17,645.73)

(22,922.69) (14,722.81) (15,291.69)

(19,058.96)

(24,561.09) (15,982.33) (16,633.45)

(1,839.30) (1,278.20)

(4,262.95) 1,154.52 (726.19)

(2,400.40)

(6,645.50) 942.87 (1,498.56)

(14,230.13)

Normal Stone Master Stone Time to Finish Fixed Cost&Expens es allocated

290,491.86 284,771.60

284,771.60 284,771.60 284,771.60

296,212.12

296,212.12 296,212.12 296,212.12

93,194.44 90,092.59

90,092.59 90,092.59 90,092.59

96,296.30

96,296.30 96,296.30 96,296.30

133,479.24 128,058.36

128,058.36 128,058.36 128,058.36

138,900.11

138,900.11 138,900.11 138,900.11

94,719.52 89,583.33

89,583.33 89,583.33 89,583.33

99,855.70

99,855.70 99,855.70 99,855.70

13,014.29 13,014.29 13,014.29

13,014.29

13,014.29 13,014.29 13,014.29

5,644.44 5,644.44

5,644.44 5,644.44 5,644.44

5,644.44

5,644.44 5,644.44 5,644.44

6,511.11 6,511.11

6,511.11 6,511.11 6,511.11

6,511.11

6,511.11 6,511.11 6,511.11

5,535.71 5,535.71

5,535.71 5,535.71 5,535.71

5,535.71

5,535.71 5,535.71 5,535.71

8,023.91

163,770.08 163,829.94

181,001.24 164,631.43 145,857.14

163,710.22

180,497.09 164,776.43 145,857.14

74,296.00 74,919.76

82,252.61 74,951.11 67,555.56

73,672.23

79,050.03 74,411.11 67,555.56

86,834.22 86,798.48

95,242.11 87,042.22 78,111.11

86,869.96

95,538.76 86,960.00 78,111.11

77,560.26 77,385.35

83,536.76 78,119.29 70,500.00

77,735.17

85,146.94 77,558.57 70,500.00

104,973.84

14.75 14.75

14.75 14.75 14.75

14.75

14.75 14.75 14.75

10.89 10.89

10.89 10.89 10.89

10.89

10.89 10.89 10.89

11.20 11.20

11.20 11.20 11.20

11.20

11.20 11.20 11.20

8.88 8.88

8.88 8.88 8.88

8.88

8.88 8.88 8.88

11.51

467,276.23 461,615.82

478,787.13 462,417.32 443,643.03

472,936.63

489,723.49 474,002.84 455,083.55

173,134.89 170,656.80

177,989.65 170,688.15 163,292.59

175,612.97

180,990.77 176,351.85 169,496.30

226,824.57 221,367.95

229,811.58 221,611.69 212,680.58

232,281.18

240,949.98 232,371.22 223,522.33

177,815.49 172,504.40

178,655.80 173,238.33 165,619.05

183,126.59

190,538.36 182,949.99 175,891.41

23 /pcs Furthermore, eachdesigncomes withseveralcolorsofmasterstone tosuit

allrequirementofcustomer.Itisincluding:white,red-ruby,light-red,pink,orange,green,moss

color,yellow,bluesapphire,blue topaz,black,and violet Each colorhas its

ownpriceandm a y varyfromsizeto size Usually, the most expensive is

theBlueTopazcolorandthecheapestis

White In thesample,wetake3colorsasthecheapest,theaverageandthe moste x p e n s i v e t o

s i m p l i f y theprocess At this moment,SakurapricingonlychargedVND10,000per color

InSupportingInformation5a,5b,5c,5dpresenttheproductpriceofeachmodelandt h e i r calc ulatedcost The allocationofthis cost baseon theassumingthat theonlyvariablecostis their

stonepriceandallthefixedcostmaynotsignificantchangeduringthewholeyear This is easy to seethat forsuchasmall sample,thereare alot

ofproductpricemakenofinancialsenseasitcostishigherthan its sell price

A simpletestisexecutedbyrandomlyselectagroup

ofproductsthatwehavecalculatedcost,stimulatingthe numbersellofonemonth

inordertoseetheoutcomeis noto n l y just abadcombination

ofproductbutrathertheunavoidabletruth The directorofj e w e l r y divisionwasalsoaskedto manuallycreateanother combinationto avoid

Divisionhasgreatchanceof

aleis wrong.Ironically,for themanufacturingcompany,themoret h e y sell, thegreatertheirlost.

suggestedthatthemanagementshouldconsiderthecostofeachtypeofproductinreflectiono f theirab ilitytogenerateprofit Blocher etal(9)emphasizedcostbehaviorstudiesareimportantduetotheinflu enceonthedegreeofoperatingrisk,break-

evenpointandsafetymargin,profitplanningandcontrol Drury (10)explainedthatcostandrevenuesho uldbetracedtotheindividualsresponsible And wecouldseeinpreviouspart,lackingofinformation,e speciallycostofproductionandoperationmakethemanagementteamofj e w e l r y divisionchoseth ewrongway That leadtothefirstsolutionfortimelyandaccuratelydecisiveinformationisthecompan

costbeforenotduringtheproduction

However,inthestudyofOlympusOpticalcompany,Cooper

etal(11)foundthatthec o m p a n y indeedcouldreducethecostduringthemanufacturingprocessaslo

(13) h i e r a r c h y forthecostsinvolvedinthemanufacturingprocess This isnotrequiredtoseparat

et h e companyintotwoormoresmallercompany,

whichisunwisebecausealossinJewelrybusinesscouldhelptoreducethetaxobligationofthetotalcom pany.Thesolutionisonlyint h e managementaccountingpurposes.Thiswillhelpthemanagementund erstandthetrue

26 costofeachbusinessincooperationwithitsrevenueinordertomakemanagementdecisiont i m e l

year More optioncouldcomefromMISAAMIS VNprogram(website: http://

www misa com vn )thatprovideallinone

solutionERPwithcostfromVND3million/yearupto9million/

P(website: http://www. sage. com/us/erp/sage-300 )offeraverycompetingpricefromUSD75/

Cheahetal(15)statedthatinordertofindoutthehiddenqualitycost,thecompanyneedst o movebey

27 Hansenetal(4)referredanActivity-BaseCost(ABC)Managementsystem

CASHB O N U S /

INCENTIVES

SILVER( 8

9 9 % )

WAGE & SALARY (43%) SEASONAL EFFECT

OTHER COST & EXPENSES (8.48%) TOTAL PRODUCT COST STONE (36%)

SIZE

COLOR (white,red,green,y ellow…)

SHAPE (round,diamond,cacb onchon,heart,square

29 VND/

pcs Compare withtheactualcostwecalculatedinSupportingInformation7,theproductcostisVND5 70,571/

pcs,theestimatingcostis98 56%oftheactualcost Due tothel i m i t oftime,weonlytestonlyafewnu

ultpresentedintable6below C o m p a n y couldbewisetofullyrecalculatealloftheirproducttoa chievebetterformulaandratio

StonePrice

CostofPr oduction

intael

Weight-Costof metal

Estimated costofprod uction

%ofEsti mation Normal Master

etyisjustthedifferencebetweentheexpectedsaleandt h e

saleatbreak-even As longasthemarginismaintainedatthedesirednumberorjustap o s i t i v e number,theman agementofcompanyisauthorizedtoadjusttheirstrategicpurposes T h e simplestwaytodothisisimpr ovingthecurrent“workingcard”ofdesigndepartmenti n t o the“costingcard”thatreflecting

allthecostandexpensesrelatedto theproduct.Thisis