Model of the cost management accounting in the cement manufacturing factory in vietnam

There was a study which oriented cost accounting model of each type of enterprise, has proved that the design of management accounting model for businesses needs basing on direct factors

INTRODUCTION

1 NECESSITY OF THE THESIS

In the current stage of development of Vietnam's economy, businesses have faced

with competitive pressures of the business units in the same industry and foreign

investment companies.Vietnamese businesses need to use existing resources effectively

and take full advantage of the positive impact of external forces such as supporting

policies from Government: credit policy, investment policy in key sectors However,

promoting internal forces is still the effective solution in order to help companies become

more active in their orientation Promotion effective governance of enterprise as

promotion of human resources, of intellectual sources is a key to be able to continue to

develop the material resources of the enterprise How can businesses apply appropriately

management tools for corporate governance working effectively; that is a big question

Accounting in general and management accounting in particular play a critical role in

providing useful information for administrators to manage resources and make the most

appropriate decisions

Vietnamese cement production sector has developed in association with the growth

up and urbanization speed of the country After a period of strong growth, from 2010 to

now, the cement manufacturing enterprises in Vietnam have stood before the oversupply

situation Line series, the new plants have operated in moderation, loss and even

stopping production because of rising costs, their products are not sold The difficulty of

the cement industry started in 2010 From that time, cement produced in Vietnam has

consistently been sold at the lowest price in comparison with countries in ASEAN

region; particularly its price is always below 50 USD/ton while average price of cement

in the region of 65-75 USD /ton With a mission of stabilizing the market price and

supply, contributing to curbing inflation, stabilizing macro economy, from 2008 to the

present, the price of cement has increased by only 30% while the price of coal, the main

material to produce fuel cement, has increased 4 times, the price of electricity, gas, oil

are also adjusted continuously Late in 2010, the cement businesses under the pressure of

increased exchange rate between the dollar and VNĐ, interest rates soared so the cost of

cement price increased by 22-30% Big cement producers such as Bim Son Cement;

Nghi Son Cement; Cong Thanh Cement; Hoang Mai Cement, Hoang Thach Cement

have constantly applying innovation and progressive techniques to reduce input costs

while improving quality and production output However, those companies have not used

economic management tools effectively to control costs

The question for managers is how to promote the existing resources, improve

competitiveness in order to survive and thrive during this difficult period Promoting the

role of providing information management accounting for decision-making processes of

the internal managers of cement production enterprises is one of the effective solutions

On the other hand, the author would like to develop the application of management

accounting in the specific context of the Vietnamese cement production enterprises, then

build theory (factors impacting the management accounting model) and choose modern

model to apply in accordance with the cement production enterprises in Vietnam

From the above reasons, the author has chosen the theme: "Building a model of cost

accounting in cement production enterprises of Vietnam" as the subject of my doctoral

dissertation to be able to improve capacity of scientific research and also help cement manufacturing industry manage more efficiently their costs

2 OVERVIEW OF RESEARCH

The studies mention the fundamental problems of cost accounting Scientists have studied in depth the methods to cure difficulties in controlling expenses separately There was a study which oriented cost accounting model of each type of enterprise, has proved that the design of management accounting model for businesses needs basing

on direct factors such as: the organizational structure; the interdependence between departments; the demand for information on the cost of the CFO; the technical process of production; facilities perform accounting work; the level of accounting personnel; The legal environment for manufacturing industries The above works only solve two aspects which are general orientation for cost management accounting model and direct factors mentioned above The study of foreign scientists goes deeply on the application of modern administration method such as ABC, ABM, BSC, the method of determining the cost norms, the model allocation of overhead cost of production The research has focused on management accounting for business associated with a specific business sector towards filling gaps The content is built like building apparatus of cost management accounting, putting in a cost estimate and cost norms, methods of determining implementation cost, cost variance analysis However, no public works design the model of management accounting for a particular business or an industry From gaps in research projects, the author wants to continue searching on the effectiveness of management accounting in corporate governance Theorically, the author find out relations between scientific management accounting and corporate governance through analysis of the demand of information of adminitrators, is the basis for building the model of cost management accounting for businesses At a practical level, through research on the status of management accounting in cement production enterprises today, the information needs of all levels of corporate governance, the author completes the model management accounting for cement production enterprises in Vietnam with two factors: the cost accounting apparatus combined with technology of production cost information (content and implementing process, method, and techniques

of cost management accounting) in order to achieve the scientific product with high applicability

3 PURPOSE AND SCOPE OF STUDY

3.1 Research purposes

The purpose of the thesis is to generalize theories of cost management accounting in businesses and characteristics of the cement manufacturing in Vietnam, and then build models of management accounting applying for the cement production enterprises in Vietnam To achieve the purposes the author searches on model of cost management accounting with modern methods, the lessons learned from the developed countries combined with specific studies of the cement manufacturing industry in Vietnam

3.2 Scope of the study

The author has investigated the accounting information of cost management accounting from the Vietnamese cement production businesses nationally with

representative sample of 71 firms The enterprises selected represent geographical area,

firm size, type of ownership With the detailed data, the author focuses on searching in

the cement business representing forms of ownership and model of corporate

governance, type of cement production technology including: Nghi Son cement JSC;

Bim Son cement JSC; Tam Diep cement JSC; Tien Son cement JSC; Hai Phong Cement

Company; Ninh Binh Co., Ltd 27/7

The scope of the study period is limited to 5 years (from 2009 to 2013) in order to

recognize the newest features added in the cost management accounting in enterprises

4 SUBJECTS AND METHODS

4.1 Study subjects: Study on model cost management accounting in production

enterprises in general and the businesses of cement production in Vietnam

4.2 Research Methodology

Research Methodology: To accomplish the information gathering process the

author used specific qualitative research methods are as follows:

* Documentation lookup method: The author uses the method to access documents

in theoretical research on issues related to research content from the source: The system

of specialized monographs compiled, specialized magazines at home and abroad,

scientific research works such as theses, dissertations, scientific subjects

* Methods of collecting primary information: The primary information will be

collected through a survey of businesses

Survey: The survey questionnaire was designed to gather information from

businesses about: The size and characteristics of managerial competence and control

procedures for cost information; Technological characteristics of production line;

production model, the reality of management accounting in businesses, model of

management accounting engine; the status and content of management accounting as

cost estimates…

Consult experts: Expert consultation will be undertaken through consultation with

specialists (the researcher experts have a deep understanding of cost accounting) to

create a system of theoretical models of cost management accounting for businesses and

for the cement industry in particular

- Methods of synthesis and processing information

+ Information and documents obtained are divided into 2 groups: theoretical,

practical to systematize and deploy writting arguments and the state of the industry

+ The information and data collected from the survey questionnaire and in-depth

interviews is the basis for the author to use statistical methods for each content; and then

describe the current status of management accounting systems of cement production

enterprises in Vietnam Data collected from the survey will be used to analyze and then

to confirm factors impacting and the appropriateness of the model selected for cement

production enterprises in Vietnam

Approach the research content: To accomplish the research objectives the author

will conduct research under the following workflows: The author reviews the research

studies and theoretical basis of cost, of cost management accounting Next, the author

designs general model of cost management accounting for businesses and gives views of structure of the model Then, the author searchest and carries out surveys the state of cement production enterprises nowsaday Characteristics and factors of internal management of the Vietnamese cement businesses are orientation for the author to select suitable model of cost management accouting for cement production enterprises inVietnam

5 CONTRIBUTION OF THE THESIS

The dissertation is expected to contribute the following:

Theoretical: The thesis presents the model of cost management accounting in

manufacturing enterprises in relation to cost management functions in business and cost information needs of administrators The thesis presents three types of model of cost management accounting: separate models, combined models and hybrid models At the same time the thesis states that management accounting model on theory is composed of the following factors: cost accounting management apparatus and technology of production cost information

Practical: The author presents the current status of management accounting at

cement production enterprises in Vietnam with following content: methods being applied; factors affecting such as management apparatus, technological process of cement production From that, the author builds a model of management accounting in accordance with the Vietnamese cement manufacturing companies

6 STRUCTURE OF THE THESIS

In addition to prescribed layout, thesis is structured in three chapters:

Chapter 1: Rationale for model of cost management accounting in manufacturing

enterprises

Chapter 2: Current status of cost management accounting in cement production

enterprises of Vietnam

Chapter 3: Building a model of cost management accounting for cement

production enterprises in Vietnam

CHAPTER 1:

RATIONALE FOR MODEL OF COST MANAGEMENT ACCOUNTING

IN MANUFACTURING ENTERPRISES 1.1 The views and nature of cost management accounting model

1.1.1 The ideas of the model

The concept of model Vietnamese dictionary as follows: "Material with same shape but shrinked a lot, simulating of structure and operation of other objects to present and research" or "method of brief expressing of essential characteristics of an object by one way to study that subject "Structural models are applied in many research fields” The model of structure is the model showing all internal components of material, phenomenon (not necessarily the phenomenon, the object is a system) In the opinion of

the author, cost management accounting model is belong to structural model generalizing

the asynchronous elements as tools to control production and business costs Thus, it is

necessary to clarify elements and their relationships to identify specific patterns of cost

management accounting model

1.1.2 The essence of the model of cost management accounting in production

and business enterprises

For interpreting the nature of cost management accounting model, the author

approaches of: function of cost management in enterprises, then identify managers’

demand of cost information using as a basis for constructing process of cost management

accounting

Cost management accounting model shows two elements including coordination

of accounting personnel and cost management content, process and methods, applied to

achieve the objectives of providing cost information for all levels of internal

management From concept given above, the model of cost management accounting

consists of two basic components: cost management accounting apparatus and

technology of production cost information (content, process and technical methods of

accounting)

1.2 Requirements and principles of building cost management accounting

model

1.2.1 Requirements of constructuring cost management accounting method

The model of management accounting constructured needs to ensure following

requirements:

- Provide timely and complete information as required by the internal management

level authorized for each content costs, for each job, department, project, product orders

- Provide accurate information as requested by management executives

- The management accounting information provided to ensure the details

1.2.2 The principles of building the cost managerial accounting model

The model of cost management accounting is a tool providing information for the

management of resources in the enterprise Therefore, management accounting

information provided is necessary to ensure reliability and practicability for internal

management of businesses When building the model of cost management accounting

should follow the following principles:

The objective principle: management accounting information provided has to

reflect the reality of the economic transactions arising in businesses

The matching principle: Design the model, especially the personnel apparatus

must perform in accordance with the characteristics of business and management skills

of managers

The savings and efficiency principle: Applying the model of management

accounting in businesses should be considered in the process of saving manpowers,

utilizing the existing conditions in the enterprise

Coordination principles: accounting department undertook cost management and

other departments within the enterprise should regularly exchange information in order

to provide information for management accounting

1.3 Factors affecting cost management accounting model

Regulatory environment includes the system of laws and regulations of the state namely accounting act, accounting standards and circulars guiding direction for the accounting operations of the business Management accounting needs to create a legal framework to guide management accounting specifically in the enterprises Besides, there are some factors such as business environment; positive environmental information

The internal factors are the major determinants which help firms choose the model with the appropriate content to meet the multiple needs of their internal information These are the factors that directly influence the process of building the cost management accounting model to provide useful information for management activities: operation field; management apparatus; technological processes; quality and human skills

1.4 Cost management accounting model in enterprises

As confirmed in previous content, the nature of cost management accounting model on cost management perspective is the form of management accounting organization which is made up of the cost management accounting apparatus and technology of production cost information The combination of these two factors can be done through three forms namely:

Combined model is a model in which financial accounting and managerial accounting are coordinated in the same accounting system Separate model is a model that financial accounting and managerial accounting are split Mixture model is a model that accounting system has both financial accounting modules and managerial accounting modules of accounting apparatus and accounting work

1.4.1 Model of cost management accounting apparatus

The organizational structure of the cost management accounting model:

* Combined model of cost management accounting

This model combines financial accounting and managerial accounting in a same accounting system In terms of organizational structurr, the accounting model is not divided into financial accounting and managerial accounting separately; but only divided into separate parts performing partial accounting work assigned Accountants in charge

of each part do all work related both financial accounting and managerial accounting [21,

p 28] This model has the advantage of conveniency, easy operation and compact However, this organization requires the organizers understand the qualifications and specific capacity of bookkeepers and must clearly identify the work of financial accounting and managerial accounting in each part

* Separate model of cost management accounting

In the model, financial accounting is seperate from managerial acconting both

in accounting apparatus and accounting work Accounting apparatus in accordance with this model consists of two main parts which are financial accounting and managerial

accounting The two parts may be in the same room or two function rooms The financial

accounting department has functions of recording transactions arising from economic

units in the consolidated accounts and of presenting of financial statements complied

with accounting regulation The managerial accounting has function of receiving,

processing and supplying information from the original document to meet the needs of

all levels of management It prepares detailed cost estimates; analysis, processing of

information, and establish management accounting reports as requested by managers

The managerial accounting also provides information for the planning of production and

help out managers in decision making [21, tr29]

* Mixture model of cost management accounting

The model is a combination of the two ways of organizing combined model and

separate model With this model, some parts of managerial accounting are held

separately from financial accounting, while some other parts are combined This model

has the advantage of making a stepping stone for companies that want to go straight up

separate accounting model but the management level as well as the size is not enough to

hold separation of managerial accounting

1.4.2 Technology and methods and means of production of cost information

This is the second element of the cost management accounting model which are

process, content, cost accounting methods and specific techniques of management

accounting They are applied to implement objectives of controlling costs and of

providing cost information for decision-making processes in enterprises

1.4.2.1 Classification of costs in manufacturing enterprises

Classification of costs according to function: According to this classification, the

cost is divided into production costs and external costs of production This classification

is used frequently in financial accounting for calculating product cost The classification

helps accountants control easily expenses incurred in different stages of production

process, and from that connect responsibilities of managers with every location costs

incurred

Classification of costs according to cost elements (according to the economic

nature): Costs are divided into: cost of materials, the tools and instruments; labor costs;

depreciation and amortization expense; external service costs; other expenses in cash

This classification allows enterprises to control costs for each material and non-material

resources consumption during production and then evaluate the effectiveness of using

each resource for making timely adjustments

Classification of costs according to the relationship between costs and operation

capacity: According to this classification, the costs incurred are divided into: fixed costs,

variable costs and mixed costs This classification is based on relationship between costs

incurred and fluctuation level of production capacity

Classification of costs according to operation capacity is the basis for making

operating decisions and business activities of enterprises

Classification of costs according to the relationship between costs and object for

gathering costs: Cost structure under this classification includes: direct costs and indirect

costs This classification helps to collect and process cost information appropriately

With the direct costs, accountants directly determine and transfer entire costs for the object for gathering costs For indirect costs, accountants need to gather all costs for objects then select appropriate allocation criteria for each object

Classification of costs according to the relationship between costs and the financial statements: Classification of costs according to this criterion, costs consist of product costs and period costs This is the way of classification showing relationship between costs and financial statements This classification indicates that not all costs incurred affect the profits and losses of the period that costs incurred Classification allows an overall assessment of the value of assets and the operations of the business enterprise in a period, evaluates results and business operations in future periods Classification of costs based on the level of executive control: According to this classification, the costs of business including: controllable and uncontrollable costs The classification has important implications for the management responsibilities of each department so that businesses can assess management capability and responsibility of the individual for the costs incurred under their control

Classification for analysizing, comparing to choose the optimal business plan: To serve the information for decision-making processes at all levels of management in business, costs includes opportunity cost; differential costs; sunk costs These are costs that affect the business decisions of the enterprise and help administrator consider when selecting a business plan

1.4.2.2 Construction norms and cost estimation in manufacturing enterprises

Norms of cost

Norms of cost is the standard for cost control and is the basis for the organization responsible accounting because norm cost is a measure to evaluate performance of responsibility centers and cost centers charge The actual rate is used to compare the performance results, the difference between the implementation and the actual norm; it indicates deviations outside the normal operating conditions to guide managers check steps to find the exact cause in order to overcome disadvantages Actual norm is the basis for the estimation Ideal norms can only be achieved in the best condition; no machinery is broken, skilled employees work most effectively [16, tr139]

Constructing norms of costs: Norms of costs is effective tools to control costs

Construction norm cost has to base on system of economic and technical norms Building norms of costs can apply statistics of experience method or technical and economic methods

Estimation of costs

Estimation are the planning to use resources in a period, expressing as the expected details on the mobilization and use of production factors, the financial resources to ensure that the activities of enterprises occurring normally and to contribute

to improving the efficiency of all activities System of estimates is made in businesses mainly static estimates, which is set to a specific production capacity The flexible estimation is built on a series of activities aimed at providing information on the costs, revenues and achievable profits Estimation process can be carried out according to the different sequences: Estimation can be made from the top to the bottom or vice versa

1.4.2.3 Determinng production costs

Identify objects for gathering production costs: Identify objects for gathering

production costs is the first step in the organization of production cost accounting The

essence of identifying the objects is finding out where the costs are incurred (workshops,

production department, engineering phase ) or objects incurring costs (products, orders,

)

The methods of determining the cost of production

Actual expense method: Under this method, production costs include all expenses

incurred in relation to production, including the cost of direct materials, direct labor costs

and overhead production costs The direct costs are directly aggregated for each object

incurring expenses, and overhead production costs are normally collected and then

allocated to the object incurring costs under the appropriate criteria at the end of period

The method of gathering the actual costs associated with the estimated costs:

Under this method, costs incurred during the period have been recorded and stated

However, the cost of production calculated for the volume of the finished product can be

determined on the basis of actual cost or estimated cost, depending on the nature and

aggregateability of each item of costs

Standard cost method: The standard cost is other name of the norms of costs In

business management, standards include standards in terms of quality and price

Standards is a baseline for comparison with actual incurred to determine the differences

of costs, and then find causes and solutions resolving these defects in the stage of

production that cost differences arised On that basis, it helps administrators make timely

business decisions;

Determine costs according to tasks (according to orders): Method of determining

the cost basing on works is often applied in businesses that produce products by orders,

single product with high value and large size This method records detailed information

of each individual products or group of similar products Under this method, the costs of

production are divided into the following expense items: direct material costs, direct

labour costs and overhead production costs In particular, direct material costs and direct

labour costs are aggregated according to the actual costs incurred and overhead costs are

estimated and allocated according to the allocation criteria selected

Methods for determining costs under the production process: This method is

applied into enterprises that manufacture products through continuous production

processes Products are made in large quantities, not able to account separately costs of

each individual product Costs are collected at each department, each production stage

and then calculating the product cost according to production period Finallly, at the end

of accounting period it is necessary to calculate costs of work-in-progress products by

different methods

The modern methods of determining costs

The traditional method of determining costs has advantages of easy

implementation, not requiring qualification of managers and direct doers However, it

also has disadvantages such as accuracy of expenses and product costs maily depending

on method of allocation indirect costs, lack of scientific co-ordination between

departments concerned to adjust operations as needed Therefore, to overcome the limitations, enterprises in developed countries have ignored the traditional method of cost accounting and applied the modern methods such as: activity based costing – ABC

or target cost

1.4.2.4 The analysis information provided for cost management in enterprises

The process of analyzing cost information uses common methods of business analysis as the comparative method, exclusion method to determine fluctuation level and causes of that fluctuation Comparative method is used to determine the fluctuations of following criteria: actual costs comparing to estimated costs or norm costs; actual profits and estimated profits At the same time, exclusion method is used to find causes and effects of each factor to the fluctuations Since then, corporate managers use cost information for the process of decision making: analysis of cost differences, analysis of relationships of costs, productivity and profitability; analysis and evaluation results of operations of cost centers; cost information for managerial decision making

1.4.2.5 Segment reporting in the business

The organizational structure of the business includes components associated with business task assigned Assessing the department's responsibilities is often implemented through the segment reporting analysis after a period of activity or predicting economic targets for the next period Segment reports are reports comparing revenues with the costs of parts to determine business performance and operational efficiency of the department in the organization Segment reports have often changes when changing the organizational structure or changing products or services, business sector or changing demand of information for internal administration activities

1.5 Experience applying cost management accounting model in developed countries

In the developed countries of the world, cost management accounting science have become an indispensable tool for internal management of enterprises, especially large corporations in developed countries such as Japan, USA, France If every business has direct investment in the research activities of the cost management accounting so that businesses use in developing management solutions provide economic efficiency That is the real lesson for Vietnamese enterprises to approach and use in accordance with specific conditions of each business and each industry The author introduces the model of cost management accounting in countries which typically have a lot of researches and practical applications of cost management accounting From that, the author draws lessons, builds orientation for cost management accounting model for specific businesses in Vietnam Large –scale businesses in Vietnam have started to apply modern management method into production and business activities However, cost management accounting has not really become a useful tool which provides information for managers Learning experience from developed countries, our country should select appropriate content for Vietnamese enterprises to promote effectiveness of management

of business operations

CHAPTER 2:

THE CURRENT SITUATION OF COST MANAGEMENT ACCOUNTING

BUSINESS IN VIETNAMESE CEMENT MANUFACTURING

2.1 Conspecturs of cement production industry of Vietnam

2.1.1 History and development of the cement industry

Cement production is one of the basically industrical production formed and

developed earoliest in Vietnam After the date of 30th April 1975 the cement industry

takes over Ha Tien cement plant with capacity of 300,000 tonnes /year, produced by the

making wet reverter furnace method that was built during America – Wei period and Hai

Phong cement factory with some cement workshops of vertical kiln Then the North area

has two modern cement factories with large capacity Bim Son (Thanh Hoa) and Hoang

Thach (Hai Duong) built and put into production in 1981 and 1983 Bim Son Cement

Plant was invested by Soviet Union (former) with two wet process rotary kiln, the size of

5,0mx185m, capacity of 1.2 million tons of clinker per year; Hoang Thach Cement

Factory was invested by F.L Smidth with a dry process rotary kiln, the size of

5,5mx89m, capacity of 1.1 million tons clinker per year To the South, in the province of

Kien Giang, Ha Tien cement plant with two wet method rotary kiln, the size of

3,3x100m of the Venot-Pic firm (France) was expanded in 1991 with a dry process

rotary kiln, its size of 4,8x64m by Polysius firm (France) Milestones of the cement

industry was confirmed by the number of enterprises producing cement stretching from

north to south, up to 91 businesses in 2013 The development of the cement industry and

cement businesses associates with the development of technology of cement production

All cement manufacturing enterprises nowsaday have large scale and using modern

technology

2.1.2 Overview of the operational characteristics and organization of

management apparatus of cement manufacturing enterprises

To study on the status and characteristics of cement production enterprises in

Vietname, the author selects the sample of 71 firms out of 91 (78%) Contents of the

surveys in the enterprises are knowledge of the general characteristics and the status of

cost management accounting in corporate (Annex 2.2) Now, all cement manufacturing

enterprises (100%) have large scale and using technology of rotary kiln dry method

Thus the author chooses businesses with two criteria of geographic area and ownership

type to implement the survey From the survey results the author collects and summarise

by statistical and analysis methods to find out the characteristics of production, business

operation and management apparatus, management accounting situation at the cement

manufacturing businesses In the tables for illustrating, the author selects real data of

Bim Son Cement Joint Stock Company

2.1.2.1 Production features of cement manufacturing enterprises in Vietnam

Cement manufacturing industry has complex production line, continuous

processing The cement businesses are large scale units This specific industry is only

organized to produce in locations with natural conditions associated with the supply of

raw materials as limestone, clay, ore Therefore, cement production enterprises

concentrate mainly in the provinces as Thanh Hoa, Ninh Binh, Hai Phong, Ha Tay, Tay

Ninh Currently, all plants are operating by the dry method with rotary kiln technology This is the modern production lines, advanced automation and less energy consumption, less labor-consuming operation of the production process The manufacturing process requires businesses to control costs to each production step: Mash ingredients; Clinhker baked; Cement grinding The cost of raw materials, labor costs, fuel should be monitored separately to control the efficiency and cost of each production stage

2.1.2.2 Features of management apparatus

With large-scale production (number of employees in manufacturing enterprises currently operating cement production line imported from the former Soviet Union and France is about 1,000 laborers, with businesses operating new technology it is approximately 500 to 700 employees), complex production processes,one of the important factors determining the success of the unit is the organizational structure of the corporate management in accordance with business sector, scale of production and business organization, capabilities and capacities of staff The survey data from 71 firms

of Vietnamese cement manufacturing shows that 100% of cement production enterprises are online structural management model

2.1.2.3 Characteristics of accounting apparatus model

Survey results in 71 cement enterprises shows that the cement manufacturing businesses has an accounting system organized as shown in Table 2.1 below:

Table 2.1: The organizational structure of accounting department of firms surveyed

Model of accounting apparatus Number of

businesses Ratio (%)

Mixture model(both centralization and dispersion) 4 6%

The mainly used model is concentrated one, the entire accounting work is done centrally at the corporate accounting department At the department, subordinate units do not have their own accounting department, they only have employees on duty of recording transactions, then transferring documents to the corporate accounting department to gather and form necessary reports Accounting department is supported by accounting software and some application software, so effectiveness of recording transaction and of controlling business activities increased This is a feature that allows the methods and techniques of management accounting able to promote the advantages

of accounting software to use financial accounting information from analyzing, and processing for objectives of management accounting

2.2 Situation of cost management accounting of the Vietnamese Cement manufacturing

2.2.1 Situation of organizational structure of cost management accounting

The survey data indicates that 100% of the cement manufacturing firms surveyed

do not organize their own management accounting In some businesses, cost accounting

and product costing department does financial accounting works and provides costs and

prices information for the chief accountant at the request This department is responsible

for providing information to the chief accountant and advising corporate directors as

needed However, in the current stage in order to face economic difficulties and market

fluctuations directly affectinge production and business conditions of the cement

manufacturing businesses such as shrink of market share, raw material prices, rising fuel

prices and energy, raw materials for cement production are exhausted, the cement

businesses have to organize production and business activity more efficiently

2.2.2 Current status of cost classification in the cement manufacturing enterprises:

Cost classification is the basis for recognizing and controlling costs, using data to

analyze cost information for decision-making process in the cement manufacturing

businesses According to survey data from 71 firms shows that the cost classification is

being carried out by the following criteria in Table 2.3

All enterprises have classified costs by the function to assess the incurred costs at

each stage of production and by the economic use of the production factors To ensure

the consistency between cost and finished product cost, and to simplize the work of

product costing, cost calculation of the cement products, the cement manufacturing

companies have classified costs according to economic use Accordingly, the cost of

production is divided into direct material cost, direct labor costs and overall production

cost However, the production costs classification in the cement manufacturing

businesses just meets the information for the accounting of the production costs and

products pricing in financial accounting, determining the business profit, and ending

financial reporting This classification has not supported directly to supplying

information for cost management accounting

2.2.3 Current status of norms building and cost estimation:

2.2.3.1 Current status of the norms building in the cement manufacturing businesses

in Vietnam:

Member companies of the Vietnam Cement Manufacturing Corporation have

operated according to the general system of economic and technological norms supplied

by their corporation However, to meet the specific manufacture conditions in each unit,

the businesses have built the different norms systems for their units, so that they have a

basis for resources mobilization and incurred costs control during the period During the

operation and production, the surveyed enterprises are using the systems (such as the raw

material cost norm, labor cost norm, ) as the basis for xuất vật tư At the end of periods,

the cost norm is the basis for accounting department to compare to actual costs,

accordingly to make reasonable decisions to adjust the production

2.2.3.2 Current status of cost budgeting in cement manufacturing enterprises in

Vietnam:

The survey results showed that the cement manufacturing enterprises in Vietnam

have estimated costs for their whole fiscal year Their types of costs budgets are shown

below in table 2.7 At the beginning of the year, the companies build plans of the

consumption and the production for every month of the year Based on those plans, they make the sales budgets for the whole period From the sales budgets and production plans, together with labor norms and material norms, the accounting will create the types

of production costs budgets such as material cost budget, direct labor cost budget, manufacturing overhead cost budget The cost of sales budget and company governance cost budget have not been made, that leads to the lack of information to compare the real status and the budgets at the beginning of the period

2.2.4 Current status of manufacturing costs determination:

Manufacturing costs in the cement companies are calculated according to the actual cost method (Costs incurred in the companies are classified by the function and economic nature of the manufacturing factors) Because the cement manufacturing process is complex and continual, the companies are monitored and aggregated manufacturing costs by stages of the manufacturing process At the end of months, the accounting department aggregated the manufacturing costs to calculate the finished goods cost and create the accounting reports All above costs are aggregated in the whole company and every stage in details Table 2.8 shows the cost objects in each stage Table 2.8: COST OBJECTS IN MANUFACTURING STAGES

1Powder raw material production stage

2 Clinker production stage

3 Powder cement production stage

4 Packaged cement production stage

1 Materials workshop

2 Kiln workshop

3 Cement workshop

4 Packing workshop (Source: Bim Son Cement Joint Stock Company)

To illustrate the accounting process of production costs, author present the processes in the surveyed companies by interviews and collect specific data which is generallytypical for cement manufacturing companies in Vietnam

* Direct material costs accounting: Direct materials costs include costs of main raw materials, auxiliary materials, fuel supporting to the production in companies The control of material costs incurred in the cement manufacturing enterprises has been conducted by different criteria, in order to provide information for their cost management

* Direct labor cost accounting: Direct labor cost includes salaries, allowances, overtime salary, and salary deductions to pay for the direct production workers in cement workshops The fact is that the cement manufacturing companies mainly use the method

of payment according to the volume of the finished products End of month, they base on the volume and quality of the finished products (output in a month) to do payroll accounting for direct labor in each manufacturing workshop Form of payment for the workers is by the products Many companies are paying salary by the contractual wage contracting such as: Nghi Son Cement Company signed the contract for workers based

on the production plan established at the beginning of the month Direct labor costs in the cement manufacturing businesses depend on the technology level of manufacturing processes Currently, new production lines which have been invested in the cement

manufacturing enterprises such as Cam Pha cement JSC, Hoang Thach Cement

Company, with the most advanced technology are consuming labor cost of of a quarter

of the cost 10 years ago with the old technology

* Accounting overhead cost

Overhead cost is the cost which support to manufacturing management in the

workshops, and the production units Overhead costs include cost of workshops’

management staffs; costs of materials, tools and supplies used for production;

depreciation expense; external service costs; Other cash costs, After aggregated in

each workshop, overhead cost is aggregated for the whole company in order to be

allocated to product pricing objects

Most of the companies allocate the overhead cost in proportion to the direct

materials cost for each cost object and product pricing object However, there are 10

companies using the proportion of direct labor costs to allocate their overhead cost

incurred

The cement manufacturing companies aggregate costs to calculate the cost of

finished products The product pricing object in these companies is work-in-process

product – clinker which is finished after furnaces stage and finished product – cement is

made after 4 stages of the production

Costs of sales incurred in selling centers and in branches are aggregated by costs

locations Costs of sales were detailed by cost factors including: sales staff cost, cost of

materials used for sales, depreciation cost, advertising cost, At maturity, costs of sales

are aggregated for the entire enterprise and calculate the profit

Company governance cost incurs in the functional departments: Division of planning;

Division of labor organization; Office supplies, The costs are tracked in detail for each

cost item At the end of period, the governance cost is aggregated for the entire enterprise

to calculate the business result

Interest rate expense in the cement enterprises of Vietnam is high because their

loan capital is accounted for three-quarters of the total capital This is a considerable cost

in the businesses because of its huge impact on the business results of the unit

The manufacturing costs and other costs are currently being controlled by location

and the cost factor This is very important information for decision – making

2.2.5 Current status of cost management accounting report:

According to the survey at the cement companies on the financial reports system

in general and management accounting reports in particular, the result shows that 100%

of the companies are making periodically accounting and financial reports Only 45/71

cement companies are making periodically management accounting reports, or upon

request of the internal governance Management accounting reports are made at the end

of accounting period supporting to the management need The accounting reports of

costs are made at the end of period and collected by the chef accountant When director

needs the information of cost and price, he asks the chef of accounting Currently,

information supply is only set up at the end of the year When the business result is

identified, the accountants collect the information based on the demand of the director

2.2.6 Real situation of the analysis of the cost information for internal cost management of company:

* The analysis of the relationship between cost, volume, profit:

According to the questionnaire survey to the cement companies about their analysis of the relationship between cost, volume, profit; 100% of them said they have done this work However, when we conduct the survey by interviewing 10/71 companies (Tien Son cement joint stock company in Ha Tay, Bim Son cement joint stock company, FICO cement joint stock company in Tay Ninh, Tam Diep cement joint stock company,…), the result shows the reverse The companies have conducted the analysis

of the cost, the volume and the profit items separately but they have not put those items

in a relationship The reason is that the managers who have high responsibility at the companies didn’t know any tool of the analysis in management accounting End of financial year, the accountants at the companies have compared following items: direct material cost, direct labor cost, overhead cost, cost of sales, cost of company governance, finished product cost, sales, and profit The comparision shows the difference and variability between last year and this year data, the companies have found out the causes

of this Their analysis has just reflected history information by comparing one way relationship between those items: from volume to incurred costs and profit gained

*Variance analysis for short term decision – making:

At the cement companies in Vietnam, long term decision – making is for high scale investment such as investment of new technology, update and replacement of equipment These decisions are going with long term strategic plan and business orientation Every year, the business decisions are made based on last year’s profit and the market changes, accordingly determine the production scale

Short term decision – making of the managers comes from the data provided by the chef accountant The information related to the cost and cost of finished products is provided by the accountants who are working in costs in the companies

2.3 Evaluation the current status of cost management accounting in cement manufacturing companies in Vietnam:

2.3.1 Cost information control system:

With the scale and characteristics of the cement manufacturing companies in Vietnam, they organize by the online functional model This allows the directors to control all activities in all levels, units, departments – the cost centers Main production units are divided by stages which ensure the suitable control to the closed production line This model is also fit to the creation of responsible centers Each workshop creates manufacturing cost centers, each consumption center creates sales centers,… This is a basis for building cost management accounting model which should be suitable to the cement manufacturing in Vietnam

2.3.2 Evaluation the cost management accounting in the cement manufacturing companies in Vietnam:

The accounting system and cost management accounting system: The cement

companies organize the accounting system by center model, there are accountants collecting invoices and documents at the workshops and branches and returning to the

central accounting department for aggregation In 71 companies observed, there are 04

companies organizing the system by both center and distributed model Cost

management accounting in the companies generally are not systematic The roles of

information needed are all based on the work of chef accountant and other accountants of

costs

Process of setting cost management accounting information:

The premise to conduct the process of setting cost management accounting

information needed for internal management demand, the companies have applied the

cost classification methods to identify the manufacturing costs incurred: classification by

functions and by costs factors These are the 2 main methods support to the recording

data of financial accounting, finished products costing

The costs reports are made based on this classification method in order to control

costs by factors The companies have not conducted the classification cost by model

methods such as by cost control level of managers, supporting to the decision – making

process

Setting up cost control standards, building costs norms, cost budget and other

budgets:

The companies have built costs norms based on the technology economic norms

of the Vietnam cement manufacturing corporation and adjusted to fit their own

conditions This is the standard used to determine real costs incurred in production

process The budget system made by the companies at beginning of the year is an

orientation for the business and production process of the whole year This system is a

static budget system The companies estimate the production volume based on their last

year’s business result and their future period’s condition In competitive market

currently, there is not any company applying flexible budget system to response to the

market changes

Identifying and measuring cost, business result – Applying appropriately the cost

measure methods and identifying cost objects; determining activities and department

results: In the Vietnam cement companies, cost objects are main workshop with

manufacturing process, the finished products are cement and work – in process products

like Clinker To record costs, the companies apply real costing method The accountants

at the workshops collect documents of costs incurred to aggregate the manufacturing

costs and other costs By this method, the directors only have the information of costs

after the manufacturing process finishes Therefore, the reports of costs only can be made

at the end of accounting periods

The accounting reporting – Setting information provided by accounting reports:

According to the information demand of management, particularly directors in the

cement companies researched, the cost accountants make the costs reports, turn to the

chef accountants to report to the directors The reports are made by cost factors and by

manufacturing stages, and by time of month Although the workshops which are the cost

centers are controlled by accountants, they still have not reported costs in every

workshop Thus, the cost management accounting reports have been conducted but they

are still very simple with the information of real costs and not really supported for cost analyzing

Analyzing costs, business result and effectiveness – Analyzing by costs centers, analyzing information for decision – making: The decision – making process in the companies depends on the accounting reports provided by costs accountants The reports form is very simple The companies have not analyzed the information of the relationship between cost, volume, profit in order to give the best decisions for their businesses The analysis of separated items did not allow the businesses to have an overall view about the relationship between cost, volume, profit; this leads to wrong decisions Therefore, the information of decision – making is just raw, it has not been analyzed to show the variances and the effects Those are some backwards in the control process which leads to not good solutions for costs rising currently

CHAPTER 3: CONSTRUCT MODEL OF COST MANAGEMENT ACCOUNTING FOR VIETNAMESE CEMENT MANUFACTURING ENTERPRISES

3.1 Long-term strategic development of the Vietnamese cement manufacturing enterprises

According to the information center of the Ministry of Construction, by the end

of 2013, there were 129 cement production lines have been invested and put into operation with a design capacity of 83.4 million tons It is expected that by 2020, domestic cement production will be about 112 million tons, which is 19 million tons higher than the demand In the cement manufacturing industry in the coming years, there will be the possibility of oversupply, so the Ministry of Construction had document to propose the People’s committees of provinces and central Cities not to register further cement projects during from now to 2020 The forecast of cement demand in our country in 2020 by experts was given vary, but the difference is not large In general, the forecast of cement consumption in the future of our country according to the regions shown in Table 3.2

About investment: Investing in developing sustainable cement industry

contributes to the development of economy and society, rational use of natural resources, protection of ecological environment, historical and cultural monuments, landscaping and maintenance security and defense There are prioritizing investment

in cement projects in the southern provinces; the expansion of investment projects; projects with large capacity, modern technology and low consumption of fuel and energy The cement projects under the portfolio together with this decision are only allowed to build cement grinding that has a capacity corresponding to the productivity

of clinker furnace; do not invest the individual and independent individual grinding mills

About technology: Using advanced technology with high degree of automation,

saving up materials and energy in production, choosing the right device to ensure stable production, high-quality products and reasonable prices, to increase

competitiveness in terms of regional and international economic integration Investing

in synchronization of equipment systems which utilize exhaust heat in the cement

plant to generate electricity

About capacity scale: Developing plants with large-scale capacity, new

investment projects with a minimum capacity of 2,500 tons clinker/day For projects

in the remote and the projects of technological transformation from kiln cement

production technology to cement rotary kiln can apply appropriate scale capacity

Encouraging to establish complex, large cement producers from the existing projects

with the appropriate forms

About layout plan: Prioritizing investment in cement projects in the southern

provinces, regions with favorable conditions for raw materials, industrial

development and transportation infrastructure; limiting investment in cement projects

in areas with difficult material, bad effect on the cultural heritage and tourism

development

With goals set out by the cement production industry in Vietnam, the cement

production enterprises need to use synchronous solutions: Solving technical problems

associated with technology management issues resources Building models of

management cost accounting in accordance with the current conditions of the Cement

Manufacturing enterprises to strengthen cost control is indispensable measures to help

businesses overcome the current economic difficulties

3.2 Building models of management cost accounting for Vietnamese

cement production enterprises

In condition of production and personnel of the present cement production

manufactories, authors proposed to design a management cost accounting model

associated with the orientation: Promote the available factors, the content of work is

being done; complete and add factors needed to fit the needs of cost control in the

business The design process of model is based on the production management system

and cost control models available in the business From there, the author designed the

management cost accounting system incorporated with the process of making cost

information

3.2.1 Organizing the management cost accounting system

After studying of model of accounting system in general and management cost

accounting system in particular, after surveying real need of scale and level of human

resource accounting department, author found that the combination of management

cost accounting model and financial accounting model in one accounting system

helps to be able to inherit the job information and financial accounting provided

Accounting department personnel, apart from work of financial accounting can

handle more work of management cost accounting in order to provide cost

information for all levels of internal management Management cost accounting

managers should be considered as an additional function of the accounting

department

With this model the cost control process is performed according to 3 levels of hierarchical responsibilities:

For production cost: Production foremen are responsible for controlling

expenses incurred within their respective workshops and report to the vice president

in charge of production General Directors receives information about the cost from the vice president

For selling expenses: Expenses incurred at the consumption centers and

branches are under the control of the director of the centers and branches Director at consuming centers or branches report cost information related to consumption to vice president in charge of business General Directors now receives reports from vice president in charge of business

For management costs: Costs incurred in the management department under

the control of managers and directly reported to the General Director

The manufacturing process of cost information is done at the position of work

in the enterprise

* Chief Accountant: Is the head of the company's accounting system, responsible for the entire operations of the accounting department before the director and the law, general in charge of financial and management accounting operations

* Accounting expenses, costs (Record past and future information):

* Accounting in the factories (Responsible for recording the historical information)

The job of management cost accounting need to be formalized by the rules and regulations specifically written for each job position The types of operations and documentations should be designed in the standard form Time and technical performance needs to be unified and specified in writing Transmission of information, responsibility for providing information for each specific position should

be formalized This will allow the accounting department can work proactively and effectively instead of information is only collected, processed and supplied when receiving requirement of managers Also relying on that basis, they can evaluate the job performance of the department and clearly attribute responsibility for each job position There should be a combination of financial accounting and management accounting in the same department but their functions should be clearly distinguished With such combination above, accounting system is streamlined and efficient implementation of the tasks set

3.2.2 Classifying costs in the cement manufacturing enterprises

The costs are classified according to the activity level and divided into fixed costs and variable costs This classification is the basis for determining the breakeven point, choosing the optimal business plan This stage is the precondition for management cost accounting can analyze management accounting information in situations of fluctuating factors such as the increase in cost of producing electricity price, advertising costs by analysis techniques of CVP relationships to make