THAI NGUYEN UNIVERSITY INTERNATIONAL SCHOOLEVALUATING THE COST MANAGEMENT AT G6 ENGINEERING CONSULTANTS COMPANY LIMITED An Undergraduate ThesisPresented toThe Department of Economics and
INTRODUCTION
Introduction
Vietnam has officially joined the World Trade Organization (WTO), which not only creates opportunities for domestic businesses but also challenges for businesses themselves It is an opportunity to access the world's achievements and difficulties in competition when foreign enterprises can invest more smoothly in the Vietnamese market In that trend, businesses that want to survive and develop sustainably require business managers to have effective business plans, capture the psychology and needs of consumers with products that are diversified, rich, high quality and competitive price to maximize the profitability of the business.
Cost is the quality indicator that reflects the nature of the production situation of an enterprise When the enterprise tries to find a business idea to bring revenue to the enterprise, the use of costs in the business production process must be reasonable, economical, and properly reflect the production situation Thus, the correct determination of costs will help business leaders to evaluate the efficiency of production in order to propose effective measures to improve profitability and increase competitiveness.
One of the conditions that help businesses improve their competitiveness in the international arena is to have a modern system of management science, including economic management science, but accounting is an essential part In enterprises, the collection of costs is always an important task and a measure of operational efficiency Cost management is a central aspect of corporate accounting Therefore, constantly researching and perfecting the theory and practice of costs in the Vietnamese enterprise accounting system is really necessary in the present conditions.
Through the process of researching the business situation at G6 EngineeringConsultants Company Limited, especially cost management is urgent in terms of both practical theory, as well as the process of capturing and finding understanding the business situation at G6 Engineering Consultants Company Limited, I chose the topic: "Evaluating the
Cost Management at G6 Engineering Consultants Company Limited" as the research subject for my thesis.
Background of the study
Currently, Vietnam as well as the world are increasingly trying to step forward on the path of development, enriching the country and the community, each day taking a new step on the path of bringing a world more and more full and happy as ever hope Vietnam, with a thousand years of culture, is also striving eagerly on the path of building a socialist-oriented market economy In that determination to build and enrich the country, there are so many works that have been built, buildings and roads adorn the national space as well as better meet the need for food, wear, accommodation, travel, but very important needs of each person On that development momentum, construction is an industry in an upward development trend.
The construction industry has developed steadily over the years mainly thanks to the positive influence from the real estate sector With the rapid urbanization rate and the increasing ratio of urban population to total population, construction demand in Vietnam is always high Vietnam plans to expand investments in infrastructure projects to help support overall construction output growth while focusing on improving regional connectivity through transport infrastructure development At the same time, the State promotes investment in large-scale industrial projects, domestic manufacturers boost investment in factories and production facilities Although occupancy rates in industrial zones in key provinces are increasing rapidly, Vietnam's industrial land bank is still abundant.
Starting from that requirement, accountants must provide specific information about costs so that corporate administrators can check, make decisions on prices, investments and choose production plans Cost management is important in setting up information systems for corporate operations and internal management Cost management is considered as a scientific and effective management tool to promptly process and provide information on costs, to meet information needs for administrators.
Statement of the problem
The thesis proposal aims to research the general theory and current situation of cost management at G6 Engineering Consultants Company Limited and recommend some solutions to improve the cost management at the company.
Research questions, objectives
- What theoretical basis is the cost management in the enterprise?
- What is the current situation of cost management at G6 Engineering Consultants Company?
- Which solutions needed to improve the cost management at G6 Engineering
- Systematizing and clarifying common theoretical issues about cost management.
- Researching and analyzing clearly the basics of cost management in terms of management accounting.
Practical goals: Applying the theory of cost management to analyze and evaluate the current situation of cost management at G6 Engineering Consultants Company Limited to improve costs in order to upgrade executive capacity, organize effective operations of business activities.
The Significance of the study
The topic further clarifies the general theoretical basis for cost management in G6 Engineering Consultants Company Limited.
Overview of the current situation of cost management at G6 Engineering ConsultantsCompany: analyzing, evaluating the results, limitations and problems in cost management.Therefore, the writer offers solutions to improve cost management at the company.
The Scope and Limitations of the study
Research space: Thesis research was carried out at G6 Engineering Consultants Company Limited.
Time of research: Thesis researching the current situation of cost management at G6 Engineering Consultants Company Limited.
Scope of the research: The thesis focuses on researching the current situation of cost management at G6 Engineering Consultants Company Limited and gives some solutions.
The analysis is based on data from 2017 to 2019.
The topic just stops at understanding cost management at G6 Engineering ConsultantsCompany Limited However, cost management has only been mentioned recently and is still quite new to Vietnamese businesses; the implementation of cost management still faces many difficulties and solutions completing cost management at the unit drawn from theoretical and practical research This is a broad and complex topic, the implementation time as well as the practical approach is limited, so this article has not been able to thoroughly solve all problems In the future, if given favorable conditions, I would like to continue to research more deeply in order to further improve the cost management at the company.
Definition of terms
Costs are the resources used to make a product It is expressed in monetary terms Cost is the expense a company incurs in creating a product It also includes how much the company spent bringing the product to the market The price, on the other hand, is the amount the customer pays for it In other words, how much it sold it for The difference between a product’s cost and price is the profit a business makes.
Cost management is a process of planning and controlling the budget of the project.Cost management predicts the expenditure and reduces the project from going over budget.
REVIEW OF RELATED LITERATURE AND STUDIES
Related literatures
2.1.1 Theoretical basis on the cost management in the enterprise
Cost management is the analysis of the information needed for the job administration of a business This information includes financial information (expenses and revenue) and non-financial information (productivity, quality and other firm factors).
The expense manager is not simply a record taker of information on costs but also plays an important role in making management decisions in order to be able to provide customers with these products/services with the best quality at the lowest cost.
2.1.1.2 The role of cost management
Cost management helps businesses focus their capabilities into strengths, looking for opportunities or important issues in production and business.
Cost management helps businesses improve quality products or services without changing costs.
Cost management helps decision-makers to identify the lowest cost resource in production and supply goods or services.
Table 2.1 Compare the role of cost management and cost accounting.
- Expense record - Record of expenses incurred
- Analysis of information related to costs - Prepare expense reports
2.1.1.3 Cost management in the current business environment
The current business environment has a lot to change and has change the real cost management of businesses.
Currently, the business environment has expanded to the staggered market gender, making businesses subject to competitive pressure on regulations global tissue Therefore, businesses need more information about expenditure management cost more to be able to build competitive and business strategy effective.
To compete effectively, businesses must accept receive production technology changes This not only helps enterprises can control the inflow of costs (raw materials, labor, other expenses) but also can formulate decisions for production outputs (selling price, volume, revenue, profit, inventory).
Another important change of the business environment today is the constantly changing customer tastes for products/services Surname like products with high quality, with many new features, multi-design form, the attached services must be rich So business strategy of the business is to satisfy these requirements at a cost The role of cost management, therefore, becomes very important because if not well managed and analyzed, the product is of high-quality but the price will also be high, customers will not like it anymore.
Because the goal is to satisfy the tastes of customers, production and business activities also moved in the direction of customer Therefore, the organization of the business also changes and looks into functional groups or divisions (research studies development, production, delivery, warranty, and repair) Real cost management practice will also be changed accordingly The group/department will have its own operating expenses Reports on whether the cost will reflect the performance of the groups/divisions reasonably or not reasonable.
Table 2.2 Comparison of past and present business environment
Competitive environment Large-scale economy, The focus is on quality, standardizing products functionality and customer satisfaction product Production process High output, large inventory Low output, low inventory, minimizing costs
Production technology Automatic cable assembly line, Robot system, using using separate technology in interlinking technology each stage through a network system
Labor skills Requirements are low High requirement
Consumption market Mainly domestic Consumption globally
2.1.2 The concept of cost in strategic management
A cost agent is any factor that has a change effect total cost.
To produce products or services we need materials, labor, electricity, water, machinery… When used they create out cost: raw material cost, labor cost, and other costs.
With different usage levels, they create total cost levels different Those are the cost drivers.
Summary: For the enterprise, to achieve a low cost, then the administration of the cost drivers is very important.
It is the aggregation of costs into groups There are many ways to divide into groups
- By cost form (labor cost group, raw cost group material…).
- By source of cost (cost of the production department, odometer plan, warehouse management department )
The payee is a product/service must receive all costs related to administration and production.
2.1.2.4 Fixing costs and allocating costs
Cost fix is to put costs directly into the expenditure group fee or subject to receive the cost Example: cost of raw materials, direct labor costs are the direct cost of production products or services These costs are easy to calculate when we analyze the cost of a product.
Cost allocation is to bring indirect costs to the cost group or subject to receive the cost. These indirect costs are difficult be exact for a cost receiver Therefore, it does can be allocated to the payee on a certain basis that joint karma is the most suitable For example, the cost of electricity and water is possible allocate to expense groups on the basis of the number of hours the machine is running.
Thus, the number of machine hours is called the base of allocation, or cost of indirectly allocated departments on the basis of the number of hours worked by direct labor
Actually, for simplicity and ease of calculation, cost administrators accept using the average indirect cost method per product (total that indirect cost divided by the quantity the product is manufactured Each product receives the same cost share together) However, this method did not show the level of using cost factors for each product or service.
2.1.3 Production costs and cost classification in the enterprise
Production and business activities of an enterprise are essentially the process of consuming production and business factors, including labor materials, labor objects and labor force to create products and jobs and certain labor force to meet the production and consumption needs of society In this process, the enterprise consumes a part of its resources, which incurs costs and creates new resources in the form of jobs, products, and labor.
“Cost can be understood abstractly as the monetary manifestation of the total waste of living labor and physical labor arising in the process of production and business activities or the cost is the cost of resources economy, on specific assets used in production and business activities” (According to Ph.D Huynh Loi and Ph.D Nguyen Khac Tam, Cost Accounting, 2002).
From the perspective of financial accounting, the costs are considered the costs incurred associated with production and business activities in the accounting period, the value of a resource consumed in the production and business activities of the organization to achieve a result.
In terms of management accounting, costs are considered the actual costs associated with the plans, products and services Business costs from the point of view of management accounting are always specific in order to consider the efficiency of departments, which is the basis for making investment decisions or choosing the optimal options.
There are many ways to classify costs according to different criteria:
Cost classification according to the relationship between the cost and profit determined each period
Product costs: Are the costs associated with the production of the product or the process where the goods are purchased The cost of a product is recognized as the cost (called cost of goods sold) at the time the product or service is consumed When products or goods are not sold, these costs are in product or inventory (called inventory costs).
RESEARCH METHODOLOGY
Data collection methods
Refer to the dissertations and topics on business management to learn from experience and systemize the theoretical basis of cost management.
Collecting information through the use of senses and supporting devices to directly observe the accountant performing the accounting, recording all factors related to the research object, in accordance with the research objectives are to describe and identify research objects.
It is used to collect necessary information and data by photocopying, taking photos or hand-copying invoices, vouchers, accounting books as a basis for proving economic and financial transactions arising The basis for using this method is to use accounting vouchers to reflect the arising economic transactions.
Data processing methods
Method of comparing and analyzing data: Applying this method to compare the quantified economic indicators and phenomena with the same content and similar properties to determine the trend and volatility of indicators It allows us to synthesize the general features, separate out the characteristics of the phenomena for comparison, on that basis to evaluate the aspects of development or underdevelopment, efficiency or inefficiency to find out methods optimal management in each specific case.
Integrated approach: From the initial collected data, systematically synthesized according to each process, comparing the actual situation in the period from 2017 to 2019,
FINDINGS AND DICUSSION
Overview about G6 Engineering Consultants Company Limited
4.1.1 Introduction about G6 Engineering Consultants Company Limited
G6 Engineering Consultants Company Limited was established in 2008, is a consulting business in the field of construction investment in transport infrastructure, industrial and civil The company has experience in consulting services for all phases of projects following Vietnam's basic construction investment procedures Over the past 12 years operating in the field of surveying, designing, monitoring and managing construction, the company's services are increasingly diverse and rich The company has been constantly developing and becoming one of the strong brands in the construction industry in Bac Ninh province The G6 brand reputation has been confirmed with hundreds of construction projects, large and small in the region G6 Engineering Consultants Company not only focuses on making profits, but also solving social problems.
G6 activities currently include many areas: Setting up of construction investment projects, construction survey, construction design, verification of the effectiveness and feasibility of investment projects, verification of construction design, cost estimation and total cost estimate, consulting bidding, selection of contractors in construction activities, construction supervision and installation of construction equipment, quality inspection of works construction, design and construction of interior and exterior works and other consulting services at the request of customers, in accordance with the regulations of Vietnam In particular, based on the core strength of construction consultancy and supervision is an important factor to promote strong revenue growth From that foundation, the G6 is and will continue to grow further into the future.
With the strength of experience, technology and human resources, G6 always actively grasp, make in-depth investment, apply new techniques, improve management capacity, and improve structure, in order to continuously improve high quality of products and services, ensuring competitive advantage and sustainable development of the company.
4.1.2 Functions, duties and business area of the company
According to the business registration license of G6 Engineering Consultants Company, the Company has the following functions: Construction of industrial, transport, irrigation, electricity and water works; Construction of houses of all kinds, ground preparation, and installation of electrical systems.
The company has a duty to ensure good performance in the above-registered industries and business areas Constantly evolving in all aspects to bring profits to business owners, at the same time create jobs and jobs for existing employees Besides, the fulfillment of obligations to the state through the payment of taxes and fees as prescribed makes an important contribution to the socio-economic development in Bac Ninh province in particular and the whole country in general.
Currently, G6 Engineering Consultants Company is focusing on two big business segments: civil construction - industry and transportation.
The company specializes in the construction of civil, industrial, construction projects with high quality, technical and artistic requirements such as hotels, complexes of offices, high-class houses
Although being a small business, born in a difficult economic situation, production and business activities have also achieved many commendable results Currently, the company has created jobs for many workers in the construction industry and the office department Not only that, the company continues to invest, expand the scale of development, in order to maintain and further develop the achieved results G6 will continue to grow further and become one of the big enterprises in the construction industry in Bac Ninh in the future.
Labor is always an indispensable resource for every enterprise, besides financial resources, the human factor contributes to the enterprise's labor force, thanks to the labor force that produces products At G6 Engineering Consultants Company, the human factor plays an important role and is always on top; each individual's achievements are valued and recognized by the director Therefore, the scale and quality of human resources of the company are growing.
4.1.2.4 Business performance at G6 Engineering Consultants Company from 2017 to 2019
Table 4.1: Business results of the G6 Engineering Consultants Company from 2017 to
(Source: Financial report of G6 Engineering Consultants Company from 2017 to
According to the method of comparing production and business results between years in the research period, the basic indicators show:
Comparing absolute numbers shows that, total revenue between years has increased, in
2017 increased by 9,132.0 billion and in 2019 increased by 15,815.0 billion compared to 2017.
This shows the scale of investment for development production and business, especially in 2019 compared to 2017 increased 73.18% Relative numerical comparison shows the completion of plans, projects and norms In particular, the growth rate between years has increased, in 2018 it increased by 6.7% compared to 2017; 2018 increased by 11% compared to 2018, resulting the growth rate of the next year higher than the previous year and exceeded 4.3%.
However, it is worth noting that the increase in total profit is not proportional to the increase in total revenue.
In 2018, total revenue increased by 9,132.0 billion dong compared to 2017 and brought the Company a pre-tax profit of 2,036.0 billion dong The value of total revenue for
2019 is 15,815.0 billion VND but the balance for pre-tax profit is -3,400.0 billion VND (excluding the obligation to pay 5% corporate income tax) This will be analyzed in the following sections to find the cause of this phenomenon.
But if we go through the criteria in the table, the cost of goods sold increases sharply.
In 2018, an increase of VND 11,343.0 billion compared to 2017, and in 2019, an increase of VND 15,876.0 billion compared to 2018 The growth rate of cost of goods sold increased much faster than the growth rate of total revenue: 2018 3.5% higher and 0.2% higher in 2019. Selling expenses and administrative expenses improved more in 2018, but increased sharply in 2019 From the decrease in selling expenses in 2018 of VND 2,284.0 billion, to VND 1,328.0 billion VND in 2019 and the decrease in administrative expenses in 2018 of 1,542.0 billion VND increased to 578.0 million VND in 2019 another spike In 2018-2019, profits from financial activities both increased sharply by 79% and 155% And revenue from other activities increased by 285% and 18.5%.
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4.1.2.5 Organizational structure of the management apparatus
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Chart 4.1: Organization of management apparatus at G6 Engineering
Functions and duties of departments
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Organize economic accounting for the whole company on production and business activities of the company in accordance with the Law on accounting and statistics of the State synthesizing business results, make statistical accounting reports, and analyze production and business activities to help the Director check the implementation of the company's plan This department is responsible for ensuring the company's benefits such as salary, bonus, revenue, expenditure
This department is responsible for the personnel situation of the company: being responsible for monitoring, urging, managing and recruiting personnel, assigning employees in suitable job positions to ensure human resources for production; be responsible for all kinds of documents, papers, records, books in the company; deploying the company's rules, rewarding and welfare activities.
Construction products are of a single and individual nature:
Each construction object is each work, work item, requiring appropriate technical requirements, structure, form, and location, specifically determined on each design and estimate of each object separate construction.
Cost management at G6 Engineering Consultants Company
4.2.1 The general evaluation of cost management at G6 Engineering Consultants
The cost management is not just a strict and reasonable work of accounting and calculating costs It also includes corporate governance, field management in production and costs incurred To conduct production and business activities, businesses have to spend a variety of costs, collectively known as business costs The business cost of a firm is the monetary expression of the costs of living and materialized labor in a given business cycle. Business expenses include many types, with different positions and uses:
We can consider the business expenditure management of the company through the following table:
Table 4.2: Business expenses at G6 Engineering Consultants Company from 2017 to
6 Total cost of production and business 100.337,0 104.228,0 108.940,0 Through the table above we can see the cost that the company must spend compared to the increasing revenue In 2018 total revenue increased by 9,132.0 billion dong compared to
2017 corresponding to 6.7% The total turnover value of 2019 is 15,815.0 billion VND compared with 2018 corresponding to an increase of 11% To better understand, we can analyze each of the following cost items:
For the direct material cost item: This expense accounted for the largest part of the total cost of the Company, in 2018 increased 11,581.0 billion, equivalent to a rate of 19% compared to 2017, in 2019 it increased 1,097.0 billion VND equivalent to 1.5% compared to
2018 It increased mainly due to the consumption of raw materials and the cost of raw materials exported This consumption reflects whether the raw materials are used economically or wastefully while the raw materials used depends on the market price, on the stock of raw materials Since the management of raw material prices is almost uncontrolled because each time a new contract is signed after handing over to a separate factory, the new factory purchases raw materials to meet demand, raw material prices depend on the market situation at that time and the ability to choose from the buyers of the materials.
Therefore, the price is not controlled by the company because it only approves the level through cost estimates In addition, the right is assigned to the buyers of the materials in the factory, so it is easy to add raw material prices even when there is a red invoice, the materials are bought floating in the market, so the more price control becomes difficult.
In terms of management in terms of kind: Most of the actual material consumption for products and projects is higher than the norm From familiar and popular products, the management of the consumption of raw materials is relatively good, in contrast, for projects in rural, remote and remote areas, the management of raw materials The material is very loose, causing high loss, high loss level, high failure rate, and defective products without recovery measures In fact, the management of in-kind is still weak when renting a warehouse, only the function of checking the volume of import and export as required, not interested in the quality of raw materials Because of that, the cost of raw materials of the company in general increases.
For the direct labor cost item: in the company, this cost accounts for a small proportion and tends to decrease in 2018 but increases in 2019 In 2018, it decreased by 15% compared to 2017 but to in 2019, it increased by 9.3% compared to 2018 It shows that in
2018 the company has focused on renovating machinery and equipment; reasonable division of labor; There are incentives for employees, contributing to increase labor productivity, reducing direct workers' wages But due to the lack of strict management, in 2019, the cost increased, it was because the company changed its mechanism to recruit more employees to join the company as well as the projects The company mobilizes external workforce for large projects and contracts, especially those in rural areas With these projects, the company mainly meets technical labor, most of which mobilize idle workers in rural areas, so the cost is very low But this is also a difficult problem for the company because the quality of labor and the quality of the finished product deteriorates, sometimes destroying and going to work causes even greater damage However, the reduction of labor costs is not an achievement of the company in labor management, because in the year factories still have to mobilize workers to work overtime to meet the production demand Meanwhile, there are time periods when workers are idle and have no job to do, so the actual labor productivity of the factory in 2019 decreased compared to 2018.
As for general production costs: This cost is used for production activities in the company and it is allocated separately to each production workshop, so we can consider the following table:
Table 4.3 Analysis of production costs in the company
From the results in the table above, we can see that the production cost in 2019 increased 931.0 million VND compared to 2018, corresponding to an increase rate of 10%. Therefore, the company has managed the usage expenses in the works and departments that are not well managed.
The cost of materials in the works increased by 380.0 million VND, at 16.1% due to the materials supplied to the sites that have not been directly checked, but only on the basis of the supervisor after having the stock release paper materials, go to the warehouse to receive materials and bring them to the construction works On the other hand, the increase in this cost is also due to the fluctuation of the market price in the past, making the material price increase, which is an objective factor that cannot be avoided The first reason for the increase in raw material costs is that the prices of some corresponding input materials have increased significantly Such as iron, steel, cement, oil, electricity However, if we ignore the above objective factor, the increase in the cost of this item must include the subjective impact of the company.
The decrease in staff cost is 531 million VND due to the decrease in salary allowances of managers and departmental staff at the company last year The company has re- arranged the organizational structure of the department and reduced the number of employees who regularly receive materials for production, which is combined with the workshop statistics The company has a regime to reduce a number of regimes on travel expenses and meals for factory and department employees Hence in 2019 the cost dropped to 33.1%.
Depreciation of fixed assets increased to 527 million VND, at the rate of 14.9% in
2019 compared to 2018, the reason is that some machines have been operating continuously
24/24 hours for production such as welding and cutting machines Since the cost of using the machine in the year is determined by the company as the depreciation rate of the fixed asset in the year, this item is almost unchanged, and accounts for a small proportion in the structure of expenses incurred in the year Thus, the increase in production costs is partly due to the increase in electricity prices, partly due to the poor management of raw materials costs used in management and other costs purchased from outside Moreover, the organizational and technical level in construction is poor, so there are additional costs of surround and storage
In addition, the loan must be payable because capital is occupied by the customer, the capital is stagnant internal appropriations; investment projects that were difficult to recover many years ago have not been fully resolved.
Service costs purchased from outside in 2019 compared with 2018 increased by 437 million dong, increased by 38.1% due to damaged lathes and corrugated iron so the company had to buy from outside for repair The increase in electricity and water prices of the state in the past year is also the reason for the increase in the company's expenses.