Poor cost management of company a

The registered business lines of the company include: planting rubber trees, coffee, cashew; exploiting, purchasing and processing rubber latex; buying and selling raw agricultural produ

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

LAM THI HAI HAU

POOR COST MANAGEMENT OF

COMPANY A

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2021

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

LAM THI HAI HAU

POOR COST MANAGEMENT OF

COMPANY A

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Dr Tran Phuong Thao

Ho Chi Minh City – Year 2021

EXECUTIVE SUMMARY

Businesses always have to improve and build themselves constantly to stay competitive in the market Competition in businesses especially requires continuous productivity improvement For company A, the study analyzes to improve production and business results by focusing on cost management Over the years, cost accounting has been a subject of widespread concern and discussion Along with the continuous development of the business market, traditional cost accounting is gradually moving towards cost management Outstanding results have been recorded

in the operational efficiency of the application of cost management, businesses increasingly focus on building and perfecting this management Company managers should have a clear understanding of the company's internal costs to make the right decisions about strategy and sustainable development goals In addition, the company must examine and continually improve its internal processes to form the basis for sound decisions in order to gain and maintain a competitive advantage

Basically, management accounting provides necessary and important information to help the management team make decisions for the company's operations By providing a wealth of quality financial information, analysis and statistics, cost management greatly assists managers Because of the importance and internal resources of the company, effective cost management is one of the issues that need to

be considered and perfected to improve the company's business results

A cost management system is complete if it is well built from the steps of planning, monitoring, evaluating and reflecting the actual costs incurred The company's cost management also depends on many internal and objective factors outside the company An well cost management process is influenced by company size, culture and level of technology development

The study explores the state of cost management in company A In particular, with the facts at the company and academic studies, it can explain the limitations of company A's cost management Solving and gradually overcoming those limitations would help company A achieve good performance

ACKNOWLEDGEMENT

First of all, I would like to thank Dr Tran Phuong Thao for her enthusiastic guidance

and help to complete this thesis With expert advice and suggestions, the study has

been improved and completed

Secondly, I would like to express my sincerest thanks to the 10th MBA course of

International Business School, University of Economics Ho Chi Minh City The

school and course provided me with an environment to enrich my knowledge of

corporate governance and real business situations This contributed largely to the

completion of this final thesis

Third, I would like to thank company A and colleagues for giving me the opportunity

to research and provide useful information to complete this thesis

TABLE OF CONTENTS

TABLE OF CONTENTS iii

LIST OF TABLES vi

LIST OF FIGURES vii

CHAPTER 1: PROBLEM CONTEXT 8

1.1 COMPANY OVERVIEW 8

Main objectives 9

Sustainable Development 9

Organization chart: 10

Business and production activities 11

1.2 Business symptoms: net loss from tapping latex 12

1.3 The importance of symptom 14

CHAPTER 2: PROBLEM IDENTIFICATION 16

2.1 Preliminary analysis 16

2.2 Possible problem validations 19

2.1.1 Poor price competition in the market 19

2.1.2 Limited resources 22

2.1.3 Poor recruitment 25

2.1.4 Poor cost management 29

2.3 Main problem validation 32

2.4 Main problem definition and Consequences 35

2.4.1 Main problem definition 35

2.4.2 Consequences of the main problem 36

CHAPTER 3: CAUSE VALIDATION 38

3.1 Potential causes 38

3.1.1 Poor budgets planning 38

3.1.2 Weak cost control 40

3.1.3 Influential factors 41

3.2 Justification of causes at Company A 43

3.2.1 Poor budgets planning 43

3.2.2 Weak cost control 45

3.2.3 Influential factors 46

3.3 Main cause validation 47

CHAPTER 4: SOLUTIONS SELECTION 50

4.1 Alternative solution 50

4.1.1 Cost control trainings 50

4.1.2 Improve the cost control process 52

4.2 Solution selection 55

4.3 Action plan 56

CHAPTER 5: SUPPORTING INFORMATION 60

5.1 Research methodology 60

5.2 Interview transcript 60

LIST OF REFERENCES 79

LIST OF TABLES

Table 1: Profit of each segment from 2018 to 2020 13

Table 2: Percentage change 33

Table 3: Difference of planned costs and actual costs in 2020 34

Table 4: Benefits and costs of training 52

Table 5: Benefits and costs of improving cost control system 55

Table 6: Difference of two solutions 56

Table 7: Detailed action plan 59

LIST OF FIGURES

Figure 1: Organization chart 10

Figure 2: Proportion of profits in 2020 13

Figure 3: Profit from exploited latex segment 14

Figure 4: Preliminary Cause and Effect tree 19

Figure 5: Rubber Price 21

Figure 6: Classification of resources for the business model 22

Figure 7: Land Grade 24

Figure 8: Average Productivity of Company A, B, C in 2020 25

Figure 9: Amount of workers from 2018 to 2020 28

Figure 10: Average Productivity of Company A from 2018-2020 29

Figure 11: Total latex explotation 30

Figure 12: General and Administration expense 2018-2020 31

Figure 13: Exploited and Processing expense 2018 - 2020 31

Figure 14: Fishbone diagram of potential causes leading to main problem 43

Figure 15: Cost control 46

Figure 16: Costs 47

Figure 17: Final Cause and Effect tree 49

Figure 18: Cost control system of company A 53

Figure 19: Cost control process 54

Figure 20: Tools of cost control 54

CHAPTER 1: PROBLEM CONTEXT 1.1 Company overview

Company A is organized and operated in compliance with the Enterprise Law, other relevant laws and the Company Charter Company A was established under the Decision of the Ministry of Agriculture and Rural Development on the transformation into a Joint Stock Company

The company's office is located in Xuyen Moc District, Ba Ria - Vung Tau Province, 120 km from Ho Chi Minh city by road, very convenient for transportation, trade, industrial development and service Company A is the first unit in the rubber industry to equitize the garden associated with the factory The company manages more than 5,000 hectares of rubber and one processing factory with a capacity of more than 6,000 tons/year Annually, company A exploits over 5,000 tons of rubber latex on average; purchasing over 1,000 tons

Product quality is always the top concern of company A Therefore, its technical processes and products are always controlled by the quality management system ISO 9001: 2015 Company A commits to the customer to always comply with the contract, ensure the quality standards and on time as prescribed, always create satisfaction for customers when using the company's products With a compact, highly qualified and specialized management apparatus, company A is ready to cooperate in commercial investment with all domestic and foreign investors

The company officially went into operation in 2004 The registered business lines of the company include: planting rubber trees, coffee, cashew; exploiting, purchasing and processing rubber latex; buying and selling raw agricultural products, unprocessed; wholesale of construction materials, installation equipment; transporting goods and passengers by road; wood gathering; real estate business; growing fruit trees, cashew trees, vegetables, beans, flowers of all kinds; plant trees every year afforestation, forest care and forestry seed nursery

The company grows and takes care of rubber trees with an area of 5,089 ha in Xuyen Moc district, Ba Ria - Vung Tau province In addition, the company has contributed capital to planting rubber in the country (Lai Chau) and abroad (Laos, Cambodia) The company organizes the purchase of rubber plantation from households and establishments in Ba Ria Vung Tau province and neighboring provinces such as Dong Nai, Binh Thuan

Sustainable Development

- Constantly improving product quality to meet customers' requirements;

- Well implement labor policy, take measures to improve production and business efficiency, improve the material and spiritual life of workers;

- Implement environmental policies, annually have a plan to renovate and upgrade the wastewater treatment system of the Plant, to ensure the criteria of environmental sanitation according to the State's regulations;

- To well implement social policies, annually support the "Child Protection" Fund, "Flood and Storm Prevention" Fund according to the program of Ba Ria Vung Tau, love and gratitude activities in the locality

Organization chart:

(Source: Internal document)

Organizational apparatus of the company with the highest authority is the General Meeting of Shareholders including shareholders with voting rights and authorized persons The General Meeting of Shareholders elects the highest management body, the Board of Directors, and elects the Supervisory Board of the company The Executive Board is elected by the Board of Directors including one General Director and two Deputy General Directors The company has six functional departments, production teams and processing factories Functional departments are in charge of major specializations The production team and the processing plant are the workforce that produce the main product

Production team: including six production teams, managing an average

of 850 hectares of rubber/production team The structure of the production team includes team leader - vice captain, statistic staff, worker group

Figure 1: Organization chart

exploiting and taking care of basic construction, and security team Processing factory: capacity of 6,000 tons/year, an average of 70 employees

Business and production activities

In addition to cooperation activities and other financial investments, the company has business activities, exploiting and processing natural rubber Exploit:

The company has six production teams spread over four communes: Hoa Binh, Hoa Hung, Hoa Hoi, Phuoc Tan The total exploiting area is more than 5,000 hectares, the annual exploiting output is about 6,000 tons of rubber latex

Processing:

The processing factory was put into operation in 1995, with a designed capacity of 6,000 tons, advanced wastewater treatment technology, and stable production of the plant's products The factory has been accredited with the quality management system standard ISO 9001:2000 The company's manufactured products conform to Vietnamese standards In addition, the factory was certified by the Ministry of Natural Resources and Environment to meet Vietnamese standards on the environment Products processed by the company to be sold to the market include: SVR 3L, SVR10, SVR 5, SVR CV

60, SVR CV 50

In addition to processing the company's products, the processing factory also processes for other companies, and buys latex from rubber households in Xuyen Moc area The vehicle has a time of use of less than 15 years, 15 units, carrying capacity 200,000 liters/day, good loading, fuel economy The company's production process will be in the following order:

Exploiting/Purchasing natural rubber -> Inspection and processing -> Processing finished products -> Consumption

1.2 Business symptoms: net loss from tapping latex

Data collected from 2018 to present, the company has witnessed a bad change in profit from main production and business activities Specifically, the profit from main business activities of the company tends to decrease to negative Meanwhile, the total final after-tax profit of the company is still positive However, with the negative results of the company's main production activity is an important issue to consider

Profits from production and business activities come from three segments: self-exploited latex, latex purchased from raw materials, commodity latex In which, two small segments, latex purchased from raw materials, and commodity latex have achieved positive profits over the years The latex exploitation segment, which accounts for the largest proportion in the structure

of profits in production and business activities has had a strong decline and negative trend recently Therefore, the self-exploiting latex segment should be reviewed and improved

In particular, the proportions of the three main parts of production are shown in the graph below From the graph, it can be seen that production from tapping latex accounts for a larger proportion (more than 95%) compared to the other two production activities Therefore, the study would focus on researching and analyzing production activities from exploiting latex

Proportion of Profits in 2020

Self-tapping latex Purchased latex Latex goods

Figure 2: Proportion of profits in 2020

(Source: Drawn by author)

Profit from latex exploitation accounts for the majority over the years Absolute figures of profits from each segment are shown in the annual profit table The specific profit data for each activity in the main production and business activities is shown in the table below The proportion of production activities from exploiting latex has both accounted for the majority but it had negative results in the last three years, leading to losses for the main production and business activities

Table 1: Profit of each segment from 2018 to 2020

(Source: Summarized by author)

5.89E-09

-5.65E-09

-5.62E-09

VND 0.00 VND 0.00 VND 0.00 VND 0.00 VND 0.00 VND 0.00 VND 0.00 VND 0.00 VND 0.00

The graph below shows the trend of net losses from tapping latex Profit from production activities from exploited latex plummeted nearly 10 billion VND from 2018 to 2019, and slightly decreased in 2020 The study would analysis the loss symptoms of production and business activities from exploited latex

(Source: Drawn by author)

1.3 The importance of symptom

The company was established and registered with the main production and business activities about exploiting and processing natural rubber latex Although the total profit after tax of the company is still profitable in the past,

it does not come from the main production and business activities In the long term, if the profitability of production and business activities is not improved and is still negative, it would largely affect the performance of the company as well as the main business function

With the main industry of exploiting and processing natural latex products, the majority of investment activities are in this segment Therefore,

if the main business results cannot be improved, the related costs are not compensated and the capital of the company would be difficult to develop This is an important issue for companies with state capital contribution It also affects the assessment of the company management

Figure 3: Profit from exploited latex segment

More specifically, with state-owned enterprises and the management of the Parent Company, the issue of capital preservation always comes first Therefore, if the results of the main business activities fail for a long time, it will affect the cash flow In addition, the loan to invest in the garden under construction and associated costs of fixed assets

CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Preliminary analysis

The profit of an activity is the result of the revenue generated and the costs involved With the above company's symptoms, loss business results come from low sales and high costs More specifically, the author conducts in-depth interviews with key persons of the company to find out the problems leading to the current losses

According to the share from the Chief Accountant and the Supervisor

in charge of the financial affairs of company A, the loss of the business from exploiting latex comes from objective and subjective issues First, the market price for rubber products in recent years has dropped sharply since the golden age of 2011 The price has signs of recovery at present and in the coming time, but not high In addition, the company faces difficult conditions in terms of resources such as climate, and the land is not highly suitable for the growth of rubber trees This leads to low output of exploited natural latex products, so revenue affects In the past two years, the company has been affected by the development of industrial zones in the area, thereby reducing the number of workers serving the exploitation The recruitment of workers has not solved this problem in a timely and thorough manner Moreover, in difficult times, the company realizes that the cost management is not really effective This leads to losses in the business results from the latex exploitation segment in the last 3 years

Based on information received from in-depth interviews, the author raises potential problems that develop in the preliminary cause and effect tree and lead to symptoms of losses from latex exploitation activity Particularly, according to Mr Hoang Quoc Hung, controller of company A:

―The rubber business's profit in recent years has tended to decrease,

even with loss results On a big side, due to the market in recent years, the price of rubber fell sharply compared to the peak time, the price recovery was not high This affects the company's revenue a lot Rubber selling price like

other agricultural products is influenced by the world price market, supply and demand market Secondly, company A is in a position that faces disadvantages in terms of resources for the development of rubber products Therefore, low volume leads to low revenue ‖

Conducting follow-up interview with Mr Nguyen Chon Cuong, Chief Accountant of company A:

―The unfavorable conditions of the general market and the company's

resources have made it difficult for the company to create a great business collection In the last two years, the worst results also came from the sharp decrease in the number of workers serving the latex extraction, reducing the total output from the gardens As a result, the reduction of input materials leads to a decrease in the number of final products produced ‖

In terms of poor price competition market, Ms Nguyen Thi Kim Ngan, Sales Deputy who shared that:

―The current losses of rubber latex is due to the low rubber price

Rubber is one of the agricultural products of our country In essence, rubber product quality is a raw product, so it does not create high value to compete

on selling price Meanwhile, the current rubber price market is in a downward trend from economic crises The selling price cannot be changed by the company itself like other market products ‖

Limited resource factor is demonstrated by Mr Vo Hoang Anh, an expert of Technical Management Department who shared that:

―Company A has a low climate and soil type in the conditions for

rubber to grow well latex at high yield The climate is close to the sea, wind and dry weather much year round unlike other regions in the Southeast Soil is the lowest of the most suitable soil types for rubber cultivation The unfavorable natural conditions have made it difficult for the company to increase output in order to increase revenue If compared with other companies in the same region, the company area suffers great disadvantages

in soil conditions so the company's output is low leading to losses in the period of low selling price.‖

For poor recruitment process, Vu Thi Hai Yen, an expert in the organization and management department said:

―The latex exploitation business has suffered losses due to the decrease

in the number of workers exploiting rubber latex The decrease in rubber latex price has caused a shift in jobs among workers working in natural rubber latex exploitation When prices, revenue and profits decrease so the bonus and welfare regimes are not like the golden period The decline in the number of workers made it difficult for the company to maintain and fully deploy the garden The company's recruitment policy remains the same and has not changed according to the current shift It is difficult to meet the required number of workers ‖

The number of workers taking leave is not enough to exploit the productivity of the existing garden As a result, the low 2-year output resulted

in bad business results This is considered a symptom leading to the study mentioned

Regarding cost management, Ms Nguyen Thi Tuyet, accountant of company A shared:

―Business activities from exploiting latex have been at losses in recent

years due to lower selling prices and low garden productivity The factors that have a great influence on revenue are the external environment Meanwhile, the company's costs for this production activity are also high The company has not really strictly managed the expenses so that it is not effective If better cost control reduces the burden on sales, the end result would improve.‖

Thus, ineffective cost management makes costs increase while low revenue It is considered a problem that has led to the losses symptoms of business operations being analyzed

Figure 4: Preliminary Cause and Effect tree

From the initial interview, the research came out Preliminary Cause and Effect tree

(Source: Drawn by author)

In summary, there are four potential problems identified from the in-depth interviews These problems are:

- Poor price competition market

- Limited resources

- Poor recruitment

- Poor cost management

2.2 Possible problem validations

2.1.1 Poor price competition in the market

Pricing decision is one of the important decisions that companies must make, because the final price decision will have a direct and indirect influence

on the results and goals of the company In the economic market, no matter

what industry the business is in, profit maximization is always an essential factor to be considered (1)

Every business organization is founded with the desire to make a profit, and their profit goals are considered when the selling price of their goods is determined Whether the business is small or large, simple or complex, private

or public, pricing decisions are made to provide competitive pricing (2)

Price competition is part of a pricing strategy Specifically, it includes setting prices on the basis of competitors' performance To use this strategy, a company must be sensitive to market changes However, the price of natural rubber products is not the same as that of other consumer products Rubber price depends on market supply and demand, world commodity prices, and exchange rates (3) These factors make the selling price only predictable in a certain small range, making it difficult to set a competitive price like other products Moreover, the low quality latex results in low prices for the passive producer In particular, it does not yet create value for rubber products that can compete with suppliers (4)

The rubber products produced on the market are still raw products Therefore, the price of the product is greatly influenced by the supply and demand markets of major countries in the world, especially from China The price change depends on the production and consumption of major countries

Vietnam's rubber price is heavily influenced by the world rubber market because it only accounts for about 10% of the export market share Selling price is an important factor in generating revenue In previous years, the rubber price peaked at 90-100 million/ton, creating great revenue and profit for rubber companies

First, company A is a subsidiary of the Parent Group The selling price for long-term contracts or periodic contracts must always be according to the price floor issued by the Parent Company for rubber products Price floor is based on price fluctuations and supply and demand in domestic and foreign markets, the situation of rubber exploitation in the country The member

As Ms Nguyen Thi Kim Ngan, Sales Deputy shared:

―The company's selling price must be based on the price floor that the

Parent Company periodically issues The company relies on it to set prices on long or short-term contracts with customers.‖

Natural rubber prices have remained low in recent years, partly affecting the consumption market of China Rubber prices in the period of 2018-2020 fluctuate sharply in each period of the year, but still in the range of

29 million - 35 million VND/ton According to the council of rubber prices, the year 2020 and so on The price of rubber in the market is very difficult to increase due to the excess supply of rubber over demand

(Source: Drawn by author)

Figure 5: Rubber Price

Figure 6: Classification of resources for the business model

According to Mr Vu Quang Khai, Deputy General Director of Company A, said:

―The low rubber selling price recently has caused losses results for the

self-exploited rubber latex production business With the current situation and the future, it is difficult for prices to spike and return to the golden age as in

2010 Therefore, prices are part of the low business results, it is not easy to overcome this difficulty.‖

Therefore, low price does not create competition in the market is a problem leading to the study's symptoms This is a problem influenced by objective factors, so it is difficult to improve bad business performance for company A

(Source: Internet)

Company A has limited physical resources including geographical location and soil These factors are very important to the agricultural sector Specifically, for the planting and exploitation of industrial crops of company

A Rubber is the main crop grown in the tropics, hot and humid climate and nutritious red soil (6) Company A in a geographical location has a great disadvantage for growing high-yield rubber trees

According to Mr Vo Hoang Anh, an expert of Technical Management Department, said:

―Company A does not have good conditions for planting rubber trees

Bad soil is in the bottom groups of the soil that is not suitable for rubber trees, although they can still be planted The latex yield in these places will not be as high as in good soil In addition, the climate is close to the sea, dry and sandy Wind is not suitable for rubber trees.’’

The company replanted rubber trees on 5000 hectares Company A has

a smaller garden scale than companies in the East region In the years

2018-2020, the area of the rubber garden will be put into operation in the range of 1,900 ha – 2,500 ha However, the location of the company has unfavorable conditions for its main industry

First, the company’s soil quality is based on a nutritious lowland soil for rubber trees According to the technical management process document issued by the Parent Company, the suitable soil types for rubber plantations are divided into four categories ranked according to soil nutrients from low to high, including type I, II, III, and IV (7) However, more than 50% of the company’s land area is grade III and IV soils with poor nutrition suitable for rubber trees Therefore, this has a great impact on the latex produced by the company The chart below shows the types of land allocated to the rubber tree planting areas of company A

Land Grade

Type I Type II Type III Type IV

Figure 7: Land Grade

(Source: Drawn by author)

Second, the harsh climate is not suitable for growing rubber trees and also reduces the output of the company compared to other companies in the region The geographical area of the company has a mostly hot and dry climate all year round In contrast, the suitable climate for rubber trees to grow favorably is hot and humid

The unfavorable resource conditions lead to low product yields (the number of tons of natural water latex extracted from rubber gardens) This is better compared with other companies in the same region but with a more favorable geographic location The table below will show the productivity of the input materials of company A, company B and company C In detail, company B and C are companies in the same industry, located in the Southeast but in another location that is more suitable for planting rubber trees Companies in the region have the advantage of favorable soil and climate for rubber trees with an average yield of 1.7 tons/ha

Figure 8: Average Productivity of Company A, B, C in 2020

1

0 0.5

1 1.5

(Source: Drawn by author)

The output of raw materials is low so that the products will be not much During the period of low selling price, small quantities of products caused revenue decline, causing loss for the company According to Mr Hoang Quoc Hung, controller of company A:

―Company A’s business results are at losses because the company is

facing many difficulties In the general situation of the whole industry, rubber prices are low but other companies with high yields still generate more profits Particularly for company A, the natural conditions that are not suitable for the planting of rubber trees plus the relatively small planting area have made the company’s output at a low level.’’

The limited unfavorable condition in terms of company resources is considered one of the potential problems facing the company

2.1.3 Poor recruitment

An appropriate job selection process could boost the profitability of the organization Because individual good experience which is gathered in the selection process is a healthy starting for performance of tasks with high efficiency (8) Therefore, poor recruitment efforts could lead to the selection

of poor applicants In addition, poor recruitment can cause an organization to fall short of its set goals and objectives (9)

The company has been witnessing an increase in turnover rate among natural rubber workers Because a decrease in rubber prices that initiates labor migration trends from rubber production to industrial or service sectors, it could further cause labor shortages in rubber production (10) Information shared from Mr Vo Bao, a member of the Board of Directors:

―The labor situation in the year encountered many difficulties The

company has a lack of labor force because wage income is still low compared

to other units in the locality Many workers quit their jobs and moved to industrial and service zones in the area Therefore, the company has to change the shaving mode that affects the performance of tapping production This has caused a lot with the revenue and profit of the latex exploitation segment.‖

The fact that the workers quit a lot, the company does not ensure the full production force, causing many disadvantages According to Ms Vu Thi Hai Yen, an expert in the administrative organization department:

―Most of the workers quit their jobs at young working age, the dynamic

force wants to change jobs In the current difficult situation, the company retains simple recruitment policies from previous years to hire workers It is not easy for the company to recruit the right workforce as expected, affecting the company’s production implementation.‖

Hiring the wrong person for a particular job leads to bad outcomes such

as poor productivity, lost opportunities for the right person, and directly to the consequences before the company has to pay for the recruitment (11) According to Mr Hoang Quoc Hung, the company’s controller:

―Currently, the company is facing many problems with the exploitation

of workers The fact that the high turnover rate does not ensure the regular production regime, which has a great impact on production output Difficulty recruiting has not yet been specifically addressed.‖

The current rubber tapping mode is generally defined as D1, D2, D3, D4, and D5 That is, corresponding to the number of each mode, the rubber tree will be shaved continuously or rested every other day (12):

D1: Continuous shave without any day off

D2: Shave 1 day, 1 day off

D3: Shave 1 day, 2 days off

D4: Shave 1 day, 3 days off

D5: Shave 1 day, 4 days off

Company A applies the D4 shaving regime in 2018 Because the number of workers is much reduced, in 2019 and 2020 the company switches

to the D5 shaving mode to save labor resources This affects the total yield of latex exploited in the year Long-term shaving will reduce the amount of natural water latex obtained, although with stimulation, it will not be equal to the D3, D4 modes Companies in the industry as well as in the region usually apply the D3, D4 regimen with support for stimulants for rubber trees

The average number of employees serving the production and exploitation team of company A in 2018 is 581 workers with an average salary

of 6.82 million VND/person/month But through 2019, company A witnessed

a lot of resignation of the latex exploiting workers With a reduction of nearly 20% of the number of employees, in 2019 and 2020, Company A has the number of workers exploiting rubber latex from 470 to 480 people After

2018, the number of employees of the company decreased sharply but the company has not solved the problem completely The number of the next two years 2019 and 2020 has a negligible increase

Figure 9: Amount of workers from 2018 to 2020

(Source: Drawn by author)

The reduction of the number of workers does not ensure the production regime as before, in addition, the production scale has increased This leads to

a fall in the yield of the company’s produce It is difficult to provide enough labor for rubber plantations and production because of more and more domestic workers (13)

The graph below shows the change in company A's average production per hectare from 2018 to 2020 It can be seen that, along with the decrease in the number of workers tapping latex, the decrease in output is reflected in the average yield per hectare over the years 2018, 2019 and 2020

Figure 10: Average Productivity of Company A from 2018-2020

1.5

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

(Source: Drawn by author)

The area of garden put into operation increases slightly from 2018 to

2020, but the average productivity of the company’s garden decreases due to the drop of workers Therefore, the weak recruitment of workers that is not ensuring the necessary production force is one of the problems leading to bad performance of company A

2.1.4 Poor cost management

Reference to an article, management accounting has the main function: business strategy setting, planning and control, decision making Managing the effective use of company resources, enhancing value and performance In addition, it also contributes to corporate governance and internal control Moreover, management accounting has a participative role in the management

of the company to help managers effectively build long-term goals, short-term plans, track actual transactions, analyze to make decisions, improve actions for future transactions, check and report on operations, internal systems (14)

Companies need to distinguish between management accounting and cost accounting From the view of cost accounting, the accounting department

is responsible for calculating and recording incurred costs in accordance with accounting principles to serve as a basis for providing information on

2710

2352

2683

2100 2200 2300 2400 2500 2600 2700 2800

2018 2019 2020

Total latex exploitation

Output

Figure 11: Total latex explotation

production costs From the other side of international accounting, cost accounting analyzes, evaluates and measures production and business costs, profitability of activities in order to improve business performance

Company A’s cost management has not been well implemented, reflected in the fact that the costs related to production and business activities tend to grow from 2018 to 2020 While production output does not change much In particular, the total costs constituting the company’s profit, cost of goods sold accounts for the largest proportion The next part is the business management and selling expenses Cost of goods sold is the price when the product is consumed Cost of the year depends on how the company uses stockpiling methods at different times of the year In which, the cost of the company’s products includes the cost of extraction and processing it

From 2018 to 2020, the area of exploitation of the company increases, output increased slightly, but related costs rose a lot Specifically, the figures below show that

Unit: Ton

(Source: Drawn by author)

0 500,000

General and administration expense

General and administration expense

Figure 12: General and Administration expense 2018-2020

5,000,000

Figure 13: Exploited and Processing expense 2018 - 2020 Figure 12: General and Administration expense 2018-2020

The total latex exploitation output in 2019 and 2020 were not equal to that of 2018 However, the production costs in 2019 and 2020 increased significantly that compared to 2018

Unit : VND/ ton

(Source: Drawn by author)

Unit: VND/ ton

(Source: Drawn by author)

The above data are the costs per ton of latex exploiting at company It can be seen that the firm's cost per ton increases over the years despite a fall in total output This is also said by Mr Nguyen Chon Cuong, Chief Accountant

of company A:

―In the problems the company faces that lead to the losses of

production and business activities, high cost is a key issue Production and business costs increase over the years while the company is facing many difficulties in price, quality of gardens as well as labor The cost management

is not really effective, still applying the traditional management The company does not thoroughly perform each step in cost management The costs incurred are much higher than the plan "

The company's cost execution process is based on the criteria of expenses and revenue that the Parent Company issues annual guidelines and is adjusted during the year depending on the company's operating results from quarter to quarter Meanwhile, the planning for the performed targets is not really accurate According to Mr Ho Huu Nghia, Head of Supervisory Board

of company A:

―The planned costs that the company gives out annually to serve as a

standard for the implementation of the costs are inefficient The company relies on the targets of the plan that the Parent Company issues for the entire industry, based on the large companies that give out the planning data This will not be true for the company, as each company in different localities will

be affected by factors such as price, basic salary of employees, amount of production costs, taxes Therefore, with inaccurate plan construction, the implementation of actual costs will lead to much deviation, making it difficult

to save costs.‖

Poor cost monitoring also shows that the company has to constantly change its original plan to achieve a good plan/execution ratio It can be seen that the weak cost management has caused to increase production and business costs This is considered a potential problem that the company is facing When costs increase and low revenue, business results can be worse day by day

2.3 Main problem validation

According to Mrs Vo Thi Thuy, General Director of the company:

―The company is facing many difficulties when the latex price and output are

low To both solve part of the company’s problems as well as create jobs for people, companies need to have new policies for recruiting workers, costs also need to be controlled to reduce unnecessary costs However, with the disadvantageous trend of labor mobility and the market price, it is difficult to recruit full workers for production Meanwhile, effective cost management control needs to be implemented in the current difficult situation Good cost control would reduce the company’s losses, gradually improve the company’s performance in the production of tapping latex.‖

In detail, with the prosperity of rubber prices in the coming time, the selling price will be higher than in the previous periods, fluctuating over 36 million VND/ton (15) If the management company monitors the cost reduction by 10-15% and keeps the same output, the profit will improve by 5-10% Based on detailed cost tables from extraction to latex production The author assumes a calculation by reducing incurred costs to result in increased profits when sales are considered to be unchanged

Table 2: Percentage change

(Source: Calculated by author)

(The calculation is based on the average marginal cost per ton of dry latex, and the cost based on recent years, the mining area and other extraction procedures have not changed)

According to data reported by the company over the years 2018 to now, fluctuations of actual costs compared to planned costs are always higher The data in 2020 below shows that ineffective cost control through comparing to the plan:

Costs Plan/Actual (Percent)

General and administration

expenses

120%

Table 3: Difference of planned costs and actual costs in 2020

(Source: Calculated by author)

The cost control is mentioned in most of the departments through depth interviews with top management of the company First, according to Mr

in-Nguyen Chon Cuong, the company's chief accountant, said: "Currently, the

area around the company opens a lot of industrial parks and services With more attractive salaries, it has created many challenges for businesses to recruit workers and retain them Recruiting new workers will also create great recruitment costs, while companies can overcome the losses by controlling the management of production costs Well monitoring production costs according

to set norms will increase cost efficiency for the company."

According to Mr Hoang Quoc Hung, the controller and also the

financial supervisor of the company said: "With the current situation, if there

are good recruits, the increase of workers will not significantly solve the problem First, the company does not have a plan to develop more than the area of rubber exploitation, and even wants to reduce it Therefore, tight management of costs and building associated production norms would create

a result that are more desirable "

Effective cost control is one of the important factors leading to a company's profitability Today, managers track a company's profits through continuous reports over short periods of time Ensuring the accuracy of data is the responsibility of cost accountants who are in charge of cost accounting (16)

Cost accounting systems provide an information base Cost management systems provide tools to improve the efficiency of processes and generate profits Applying continuous cost monitoring, evaluation and

management through the difference between the initial planned costs and the incurred costs to serve the profit (17) In addition, cost management creates impacts that go beyond profit goals (18) By effective cost management, managers can make appropriate decisions for budgeting strategies and capital implementation plans Strategic decisions affect the performance of a business, the allocation and use of resources, and policies affect the operation

of a business (19)

In conclusion, the poor cost management is the main problem affecting the current business results in terms of negative objective factors

2.4 Main problem definition and Consequences

2.4.1 Main problem definition

According to the Chartered Institute of Management Accountants, cost management is the process of identifying, reporting, analyzing, interpreting and communicating information to managers to support planning, objectives and control of the enterprise Management accountants also function in the preparation of financial statements for groups of shareholders, regulators, creditors, and taxes (20) Management accounting is defined as the process of using financial and non-financial information relevant to executive decision making to create value for the business (21) Cost management helps managers ensure goals are achieved and tasks are completed efficiently so businesses could minimize costs and maximize profits Cost management has key objectives including: formulating plans and policies, interpreting financial information, supporting in decision making, control, providing reports and coordination (22)

Cost estimate is the basis of cost control and cost management (23) The development of initial standard costs and monitoring and evaluation of actual incurred costs have a positive impact on the final business results The effectiveness of decision making and internal control is positively affected with the quality of cost management In addition, optimal internal control and making the right decisions have a good impact on the operation of the

business In contrast, the above results show that if the accounting information system and cost management are not quality, a business is more likely to fail (24)

2.4.2 Consequences of the main problem

Consequences of significant cost management problems can include incorrect product pricing, rework, ineffective solutions, reduced labor productivity, and increased consumption of resource businesses, making bad decisions (25) The crucial thing for the achievement of the investment is effective cost management Therefore, in order to provide accurate guidance to the decision maker in initiating and making their decision, consideration of value, achievement of maximal accuracy and reduction in cost are very important to achieve cost estimation Inefficient management and supervision

of production costs would lead to an increase in costs While output volume and low selling price are difficult to improve, this leads to loss of the company

In the recent situation, the resource and market factors are detrimental

to the company's production and business activities Besides, the internal of the company is not controlled and builds a monitoring mechanism, cost management tools In particular, the company's results tend to worsen a lot Although, the company is trying to fix the output factors or is expecting an increase in the market price

Company A has been in losses for many years in a row This has other consequences related to business production as well as the value of the company Firstly, poor cost management affects the financial position of the company when the debt is large because the profit is not available to ensure sufficient payment for the future term Second, the increased costs much more than revenue also affects the company's continuous cash flow with the company's interest expense being very high Moreover, if the business results are not good, the company would not be able to develop and expand, even affecting the continuous operation of the main production line Due to the

nature of state-owned companies, managers must be held accountable to superior companies for inefficiencies in the company's operations

CHAPTER 3: CAUSE VALIDATION

According to the development of the world, the business market is always competitive and production resources are always limited This affects companies to improve the efficiency of cost management By implementing cost management through tools to build budgeting, monitor costs, eliminate activities that increase costs while focusing on analyzing value-added activities Managers rely on statistics of current and past cost information to be able to estimate future costs Therefore, good decisions made by managers will positively improve the financial performance of the company (26)

Effective managing costs is the key to a company achieving good results However, in fact, having effective cost control is a great need for managers of a company to build and implement For the years before the rubber price peaked and the company's revenue was very high Therefore, cost control was not considered important Despite the development and application of management frameworks from the parent company, the implementation has not achieved good results

This problem is evident when the selling price of rubber falls and production is low When the profit from production and business activities is not good, a cost review is extremely necessary Moreover, if a company wants

to know how the problem is, the company needs to know its root cause

3.1 Potential causes

3.1.1 Poor budgets planning

A budget is ―A plan quantified in monetary terms prepared and approved prior to a defined period of time, usually showing planned income to

be generated and expenditure to be incurred during the period and the capital

to be employed to attain a given objective‖ (27) Other study has shown that:

―Budgeting is the primary tool for planning and control provided to management by the accounting function’’ (28)

The objectives of budgeting include planning and coordiantion Planning is the design of the goals that the organization aspires to achieve in