INTRODUCTION
Introduction
Vietnam's accession to the World Trade Organization (WTO) presents both opportunities and challenges for domestic businesses This membership allows local companies to access global advancements while facing increased competition from foreign enterprises entering the Vietnamese market To thrive and achieve sustainable growth, business managers must develop effective strategies that understand consumer psychology and needs, offering a diverse range of high-quality products at competitive prices to maximize profitability.
Cost serves as a crucial quality indicator that reveals the production circumstances of an enterprise To generate revenue, businesses must ensure that their costs during the production process are reasonable, economical, and accurately represent their operational status By accurately determining costs, business leaders can assess production efficiency and implement effective strategies to enhance profitability and boost competitiveness.
To enhance competitiveness in the global market, businesses must implement a modern management system that incorporates economic management science, with accounting playing a crucial role Effective cost collection is vital for measuring operational efficiency, making cost management a key component of corporate accounting Thus, ongoing research and refinement of cost theories and practices within the Vietnamese enterprise accounting system is essential in today's environment.
In my research on G6 Engineering Consultants Company Limited, I focused on the critical aspect of cost management, which is essential for understanding the company's business situation This evaluation aims to analyze both practical theories and the processes involved in effectively capturing and comprehending the financial dynamics at G6 Engineering.
Cost Management at G6 Engineering Consultants Company Limited" as the research subject for my thesis.
Background of the study
Vietnam, along with the global community, is actively pursuing development to enhance the nation's prosperity and improve the quality of life for its citizens With a rich cultural heritage spanning a thousand years, Vietnam is committed to establishing a socialist-oriented market economy This dedication has led to the construction of numerous infrastructures, including buildings and roads, which not only beautify the landscape but also fulfill essential needs such as food, clothing, shelter, and travel As a result, the construction industry is experiencing significant growth, reflecting the country's forward momentum in development.
The construction industry in Vietnam has experienced steady growth, largely driven by the thriving real estate sector With rapid urbanization and a rising urban population, the demand for construction remains high To support this growth, Vietnam is set to increase investments in infrastructure projects, enhancing regional connectivity through transport development Concurrently, the government encourages investment in large-scale industrial projects, while domestic manufacturers expand their factories and production facilities Despite the rising occupancy rates in industrial zones across key provinces, Vietnam still possesses a substantial industrial land bank.
Accountants are essential in delivering detailed cost information that enables corporate administrators to make informed decisions regarding pricing, investments, and production strategies Effective cost management is crucial for developing information systems that support corporate operations and internal management It serves as a scientific and efficient tool for quickly processing and supplying cost-related information, ensuring that administrators have the necessary data to meet their decision-making needs.
Statement of the problem
This thesis proposal focuses on examining the overarching theory and current practices of cost management at G6 Engineering Consultants Company Limited It aims to identify key areas for improvement and provide actionable recommendations to enhance the company's cost management strategies.
Research questions, objectives
- What theoretical basis is the cost management in the enterprise?
- What is the current situation of cost management at G6 Engineering Consultants Company?
- Which solutions needed to improve the cost management at G6 Engineering Consultants Company?
- Systematizing and clarifying common theoretical issues about cost management.
- Researching and analyzing clearly the basics of cost management in terms of management accounting.
The objective of this analysis is to apply cost management theory to assess the current cost management practices at G6 Engineering Consultants Company Limited By evaluating these practices, the goal is to identify opportunities for cost improvements that will enhance executive capabilities and streamline business operations.
The Significance of the study
The topic further clarifies the general theoretical basis for cost management in G6 Engineering Consultants Company Limited.
G6 Engineering Consultants is currently facing challenges in cost management, necessitating a thorough analysis and evaluation of its existing practices The company has identified various limitations and issues that hinder effective cost control To enhance overall efficiency and profitability, the writer proposes targeted solutions aimed at improving cost management strategies within the organization.
The Scope and Limitations of the study
Research space: Thesis research was carried out at G6 Engineering Consultants Company Limited.
Time of research: Thesis researching the current situation of cost management at G6 Engineering Consultants Company Limited.
Scope of the research: The thesis focuses on researching the current situation of cost management at G6 Engineering Consultants Company Limited and gives some solutions.
The analysis is based on data from 2017 to 2019.
Cost management at G6 Engineering Consultants Company Limited is a relatively new concept for Vietnamese businesses, facing several challenges in its implementation Despite theoretical and practical research highlighting solutions for effective cost management, the complexity and breadth of the topic limit a comprehensive resolution within this article Future research opportunities are anticipated to enhance cost management practices at the company, provided favorable conditions arise.
Definition of terms
Costs refer to the resources and expenses a company incurs in the production and market introduction of a product, quantified in monetary terms In contrast, the price is the amount customers pay for that product The profit a business earns is determined by the difference between the product's cost and its selling price.
Cost management is a process of planning and controlling the budget of the project.Cost management predicts the expenditure and reduces the project from going over budget.
REVIEW OF RELATED LITERATURE AND STUDIES
Related literatures
2.1.1 Theoretical basis on the cost management in the enterprise
Cost management involves analyzing essential information for effective business administration, encompassing both financial data, such as expenses and revenue, and non-financial metrics, including productivity, quality, and various organizational factors.
The expense manager is crucial not only for tracking costs but also for informing management decisions, ensuring that customers receive high-quality products and services at the lowest possible prices.
2.1.1.2 The role of cost management
Cost management helps businesses focus their capabilities into strengths, looking for opportunities or important issues in production and business.
Cost management helps businesses improve quality products or services without changing costs.
Cost management helps decision-makers to identify the lowest cost resource in production and supply goods or services.
Table 2.1 Compare the role of cost management and cost accounting.
- Analysis of information related to costs
2.1.1.3 Cost management in the current business environment
The current business environment has a lot to change and has change the real cost management of businesses.
In today's dynamic business landscape, companies face increasing competitive pressures due to global market regulations To thrive, businesses must enhance their understanding of cost management and expenditure strategies, enabling them to develop effective competitive and business strategies.
To remain competitive, businesses must embrace advancements in production technology, which enables them to manage costs associated with raw materials, labor, and other expenses This strategic approach also aids in making informed decisions regarding production outputs, including pricing, volume, revenue, profit, and inventory management.
In today's dynamic business environment, customer preferences for products and services are continually evolving, with a strong demand for high-quality offerings that feature innovative designs and comprehensive services As a result, businesses must develop strategies that meet these expectations while maintaining cost-effectiveness Effective cost management is crucial; without it, even the highest quality products can become overpriced, leading to customer dissatisfaction.
To meet customer preferences, businesses are shifting their production and operations towards a customer-centric approach This transformation involves reorganizing into functional groups or divisions, such as research and development, production, delivery, warranty, and repair Consequently, real cost management practices will adapt to this new structure, with each department managing its own operating expenses It is essential for cost reports to accurately reflect the performance of these groups and divisions, ensuring a reasonable assessment of their effectiveness.
Table 2.2 Comparison of past and present business environment
Competitive environment Large-scale economy, standardizing products
The focus is on quality, functionality and customer satisfaction product Production process High output, large inventory Low output, low inventory, minimizing costs
Production technology Automatic cable assembly line, using separate technology in each stage
Robot system, using interlinking technology through a network system
Labor skills Requirements are low High requirement
Consumption market Mainly domestic Consumption globally
2.1.2 The concept of cost in strategic management
A cost agent is any factor that has a change effect total cost.
To produce products or services we need materials, labor, electricity, water, machinery… When used they create out cost: raw material cost, labor cost, and other costs.
With different usage levels, they create total cost levels different Those are the cost drivers.
Summary: For the enterprise, to achieve a low cost, then the administration of the cost drivers is very important.
It is the aggregation of costs into groups There are many ways to divide into groups
- By cost form (labor cost group, raw cost group material…).
- By source of cost (cost of the production department, odometer plan, warehouse management department )
The payee is a product/service must receive all costs related to administration and production.
2.1.2.4 Fixing costs and allocating costs
Cost fixing involves categorizing expenses directly into the relevant expenditure group, such as raw materials and direct labor, which are considered direct costs of producing goods or services These costs are straightforward to calculate when analyzing product costs.
Cost allocation involves assigning indirect costs to specific cost groups or subjects that incur these expenses Due to the inherent difficulty in precisely determining these indirect costs, they can be allocated to the payee based on a suitable method, such as joint allocation For instance, expenses like electricity and water can be distributed among expense groups according to the number of hours machinery operates.
The allocation base for indirectly allocated departments is determined by the number of machine hours, which reflects the amount of time spent by direct labor on tasks.
To simplify calculations, cost administrators often utilize the average indirect cost method, which divides total indirect costs by the quantity of products manufactured, assigning each product an equal share of costs However, this approach fails to accurately reflect the specific cost factors associated with each individual product or service.
2.1.3 Production costs and cost classification in the enterprise
The production and business activities of an enterprise involve the utilization of various production factors—such as labor materials, labor objects, and workforce—to generate products and employment opportunities that fulfill societal needs During this process, the enterprise consumes a portion of its resources, leading to incurred costs while simultaneously creating new resources in the form of jobs, products, and labor.
Cost represents the monetary value of the total waste generated from both living and physical labor during production and business activities It can also be viewed as the economic expense associated with the resources utilized in these processes.
In financial accounting, costs refer to the expenses incurred during production and business activities within a specific accounting period, representing the value of resources consumed by the organization to achieve desired outcomes.
In management accounting, costs refer to the actual expenses linked to plans, products, and services These business costs are analyzed specifically to evaluate departmental efficiency, serving as a foundation for investment decisions and the selection of optimal strategies.
There are many ways to classify costs according to different criteria:
Cost classification according to the relationship between the cost and profit determined each period
Product costs refer to the expenses incurred during the production of goods or the procurement process These costs, known as the cost of goods sold, are recognized when a product or service is consumed If products remain unsold, these expenses are classified as inventory costs, reflecting their status as part of the inventory.
Related studies
Numerous authors have extensively researched the topic of costs, highlighting its significance in business operations This ongoing interest underscores the relevance of understanding current cost dynamics While previous studies have demonstrated various theoretical and practical successes, they also reveal certain limitations that warrant further exploration.
Master thesis "Cost management at Mining Company Limited – Dong Bac
In her 2019 dissertation, Quan Thi Phuong Dung systematically analyzed the fundamental aspects of cost management, focusing on the operational characteristics of Dong Bac Corporation The study evaluated the current state of cost management within the company, identifying key issues and proposing solutions aimed at enhancing the effectiveness of cost management practices This research serves as a practical foundation for developing strategies to address existing challenges and improve overall financial performance in the enterprise.
In his 2018 master thesis titled "Completing Cost and Revenue Accounting at AIC Commercial Joint Stock Company," Nguyen Trong Binh systematically explores fundamental theories related to revenue and expenses, primarily focusing on financial accounting However, the thesis lacks an analysis of the rationality and irrationality in the organization of accounting processes and does not address the need for improvements in the accounting structure.
Master thesis "Cost and revenue accounting at Tran Anh Digital World Joint Stock
In the 2017 article "Company" by Vu Quoc Duong from the University of Commerce, the author provides a comprehensive overview of cost and revenue accounting, applying these concepts to evaluate the current accounting practices at Tran Anh Digital World Joint Stock Company The study proposes several solutions to enhance cost and revenue accounting within the company However, it falls short in analyzing the effectiveness and inefficiencies of the accounting organization and does not place sufficient emphasis on improving the overall structure of accounting operations within the enterprise.
The existing research conducted by students at the school highlights various challenges in cost management and proposes potential solutions However, there is a notable gap in the literature, as no studies have specifically analyzed and evaluated cost and revenue accounting at G6 Engineering Consultants Company Limited This research aims to investigate cost management practices within the company from a financial management perspective, enabling administrators to identify limitations and implement effective solutions The ultimate goal is to reduce product costs, enhance profitability, and improve the overall efficiency of production and business activities, thereby fostering the company's growth.
RESEARCH METHODOLOGY
Data collection methods
Refer to the dissertations and topics on business management to learn from experience and systemize the theoretical basis of cost management.
Gathering information through sensory observation and supportive tools allows for a direct assessment of the accountant's activities, ensuring that all relevant factors related to the research subject are meticulously recorded This approach aligns with the research objectives, which focus on accurately describing and identifying the research objects.
This method involves gathering essential information and data through photocopying, photographing, or manually copying invoices, vouchers, and accounting records, which serve as evidence for economic and financial transactions The foundation of this approach relies on utilizing accounting vouchers to accurately represent the economic activities that occur.
Data processing methods
The method of comparing and analyzing data involves assessing quantified economic indicators and phenomena with similar properties to identify trends and fluctuations This approach enables the synthesis of general characteristics while isolating specific features for comparison Consequently, it facilitates the evaluation of development aspects, efficiency levels, and inefficiencies, ultimately guiding the identification of optimal management strategies tailored to each unique situation.
Integrated approach: From the initial collected data, systematically synthesized according to each process, comparing the actual situation in the period from 2017 to 2019,
FINDINGS AND DICUSSION
Overview about G6 Engineering Consultants Company Limited
4.1.1 Introduction about G6 Engineering Consultants Company Limited
Founded in 2008, G6 Engineering Consultants Company Limited specializes in construction investment consulting for transport infrastructure, industrial, and civil projects With extensive experience in all phases of project management according to Vietnam's construction investment procedures, G6 has evolved its services over the past 12 years to encompass surveying, designing, monitoring, and managing construction The company has established itself as a leading brand in Bac Ninh province's construction industry, successfully completing hundreds of projects of varying scales G6 Engineering Consultants is committed not only to profitability but also to addressing social issues, reinforcing its reputation in the community.
G6 activities encompass a wide range of services, including construction investment project setup, construction surveys, design verification, cost estimation, and contractor selection The company specializes in construction supervision, quality inspection, and both interior and exterior design services, all compliant with Vietnamese regulations Leveraging its core strengths in construction consultancy and supervision, G6 is positioned for significant revenue growth and aims to expand further in the future.
Leveraging its extensive experience, advanced technology, and skilled workforce, G6 is committed to making strategic investments and implementing innovative techniques This focus on enhancing management capabilities and optimizing organizational structure enables G6 to consistently elevate the quality of its products and services, ensuring a competitive edge and fostering sustainable growth for the company.
4.1.2 Functions, duties and business area of the company
G6 Engineering Consultants Company, as per its business registration license, specializes in the construction of various projects, including industrial, transport, irrigation, electrical, and water works Additionally, the company is involved in constructing all types of houses, ground preparation, and the installation of electrical systems.
The company is committed to achieving high performance across its registered industries and business sectors, continuously evolving to enhance profitability for business owners while creating job opportunities for current employees Additionally, by fulfilling its tax obligations, the company significantly contributes to the socio-economic development of Bac Ninh province and the entire country.
Currently, G6 Engineering Consultants Company is focusing on two big business segments: civil construction - industry and transportation.
The company specializes in the construction of civil, industrial, construction projects with high quality, technical and artistic requirements such as hotels, complexes of offices, high-class houses
Despite starting as a small business in a challenging economic environment, the company has achieved notable success in its production and operations It has generated numerous job opportunities in both the construction and office sectors Committed to growth, the company is actively investing and expanding its development scale to sustain and enhance its accomplishments G6 aims to continue its upward trajectory and emerge as a leading enterprise in the construction industry in Bac Ninh in the future.
Labor is a vital resource for every enterprise, alongside financial assets, as it drives product production At G6 Engineering Consultants Company, the human factor is prioritized, with individual achievements recognized and valued by management This commitment to valuing human resources contributes to the continuous growth in both the scale and quality of the company's workforce.
4.1.2.4 Business performance at G6 Engineering Consultants Company from 2017 to 2019
Table 4.1: Business results of the G6 Engineering Consultants Company from 2017 to
(Source: Financial report of G6 Engineering Consultants Company from 2017 to 2019)
According to the method of comparing production and business results between years in the research period, the basic indicators show:
Comparing absolute numbers shows that, total revenue between years has increased, in
2017 increased by 9,132.0 billion and in 2019 increased by 15,815.0 billion compared to 2017.
In 2019, investment in development production and business saw a significant increase of 73.18% compared to 2017, highlighting the successful completion of plans and projects The growth rates demonstrated a consistent upward trend, with a 6.7% increase in 2018 over 2017, followed by an 11% rise in 2019 compared to 2018, resulting in an overall growth rate that exceeded the previous year's by 4.3%.
However, it is worth noting that the increase in total profit is not proportional to the increase in total revenue.
In 2018, total revenue increased by 9,132.0 billion dong compared to 2017 and brought the Company a pre-tax profit of 2,036.0 billion dong The value of total revenue for
In 2019, the total revenue reached 15,815.0 billion VND; however, the pre-tax profit showed a significant deficit of -3,400.0 billion VND, excluding the 5% corporate income tax obligation This article will analyze the underlying causes of this financial phenomenon.
But if we go through the criteria in the table, the cost of goods sold increases sharply.
In 2018, there was an increase of VND 11,343 billion compared to 2017, followed by a further increase of VND 15,876 billion in 2019 The cost of goods sold grew at a much faster rate than total revenue, with a 3.5% increase in 2018 and a 0.2% increase in 2019 While selling and administrative expenses saw improvements in 2018, they sharply increased in 2019, with selling expenses decreasing to VND 1,328 billion from VND 2,284 billion in 2018, and administrative expenses rising from a decrease of VND 1,542 billion in 2018 to VND 578 million in 2019 Profits from financial activities surged by 79% in 2018 and 155% in 2019, while revenue from other activities rose dramatically by 285% in 2018 and 18.5% in 2019.
Despite an increase in total revenue, total profit declined, resulting in an unusual negative balance This situation necessitates a thorough analysis of production outcomes in relation to costs and other contributing factors to identify the underlying causes.
Architects Superintending Officer Construction manager
4.1.2.5 Organizational structure of the management apparatus
The company's management structure is designed in a functional online style, led by the Director, who efficiently communicates requests and instructions to specific departments for swift execution This model allows for rapid updates on company events, facilitating prompt operational measures Additionally, departments can directly collaborate and support one another, ensuring the successful completion of assigned tasks Below is the organizational structure of the company's management apparatus.
Chart 4.1: Organization of management apparatus at G6 Engineering Consultants
Functions and duties of departments
The Director of the company is responsible for setting the strategic direction, formulating business plans, and establishing key policies to drive production and operations Additionally, the Director oversees organizational and executive matters to ensure optimal efficiency in the company's production and business activities.
The economic accounting department is responsible for organizing comprehensive accounting for the company's production and business activities in compliance with state laws on accounting and statistics This includes synthesizing business results, preparing statistical accounting reports, and analyzing operational performance to assist the Director in monitoring the execution of the company's plans Additionally, the department ensures the company's financial well-being by managing aspects such as salaries, bonuses, revenues, and expenditures.
The department oversees the company's personnel management by monitoring, recruiting, and assigning employees to appropriate positions to ensure effective human resource allocation for production It is also responsible for maintaining all company documentation, records, and compliance with company policies, as well as managing reward and welfare programs for employees.
Construction products are of a single and individual nature:
Each construction object is each work, work item, requiring appropriate technical requirements, structure, form, and location, specifically determined on each design and estimate of each object separate construction.
Cost management at G6 Engineering Consultants Company
4.2.1 The general evaluation of cost management at G6 Engineering Consultants Company Limited
Effective cost management extends beyond mere accounting; it encompasses corporate governance and operational management related to production and incurred expenses Businesses face various expenditures, collectively termed business costs, which represent the financial implications of labor and resources throughout a business cycle These expenses can be categorized into multiple types, each serving distinct functions and purposes within the organization.
We can consider the business expenditure management of the company through the following table:
Table 4.2: Business expenses at G6 Engineering Consultants Company from 2017 to
6 Total cost of production and business 100.337,0 104.228,0 108.940,0 Through the table above we can see the cost that the company must spend compared to the increasing revenue In 2018 total revenue increased by 9,132.0 billion dong compared to
2017 corresponding to 6.7% The total turnover value of 2019 is 15,815.0 billion VND compared with 2018 corresponding to an increase of 11% To better understand, we can analyze each of the following cost items:
In 2018, direct material costs represented the largest portion of the Company's total expenses, rising by 11,581 billion VND, which is a 19% increase from 2017 The following year, 2019, saw a further increase of 1,097 billion VND, equivalent to a 1.5% growth.
In 2018, the increase in raw material consumption and export costs highlighted the economic efficiency of raw material usage This consumption is influenced by market prices and the available stock of raw materials The management of raw material prices remains largely unpredictable, as new contracts lead to separate factories purchasing raw materials based on immediate demand Consequently, raw material prices fluctuate according to the prevailing market conditions and the purchasing power of buyers.
The company does not control pricing directly; it merely approves levels based on cost estimates Buyers of factory materials have the authority to adjust raw material prices, even when dealing with red invoices Since these materials are sourced from a fluctuating market, maintaining price control becomes increasingly challenging.
Effective management of raw material consumption varies significantly across different sectors While familiar and popular products demonstrate relatively good management practices, projects in rural and remote areas often experience lax oversight, leading to increased waste, higher failure rates, and defective products without recovery measures Additionally, the current management systems for in-kind resources are inadequate, focusing primarily on import and export volume checks rather than the quality of raw materials As a result, companies face rising raw material costs, impacting overall efficiency and profitability.
In the company, the direct labor cost has historically represented a minor portion of overall expenses, experiencing a decline of 15% in 2018 compared to 2017 However, this trend reversed in 2019, with direct labor costs rising by 9.3% from the previous year This fluctuation indicates a dynamic shift in labor cost management within the organization.
In 2018, the company focused on upgrading machinery, optimizing labor division, and incentivizing employees to boost productivity while reducing direct labor costs However, in 2019, a lack of strict management led to increased expenses as the company expanded its workforce for various projects, particularly in rural areas While utilizing idle workers from these regions lowered costs, it also resulted in deteriorating labor quality and product standards, occasionally causing significant damage The reduction in labor costs was not a true reflection of effective management, as the company still required overtime work to meet production demands, leading to periods of worker idleness and a decline in overall labor productivity compared to the previous year.
General production costs are essential for the company's production activities and are allocated individually to each production workshop This allocation allows for a clearer understanding of expenses associated with each specific workshop, facilitating better financial management and operational efficiency.
Table 4.3 Analysis of production costs in the company
In 2019, the production costs rose by 931.0 million VND compared to 2018, reflecting a 10% increase This indicates that the company has effectively managed the usage expenses in various works and departments that were previously not well controlled.
The cost of materials for construction projects rose by 380.0 million VND, representing a 16.1% increase, primarily due to insufficient direct checks on materials supplied to sites, relying instead on supervisor approvals Additionally, market price fluctuations have contributed to the rise in material costs, making it an unavoidable factor Significant increases in the prices of essential input materials like iron, steel, cement, oil, and electricity have further exacerbated this issue However, beyond these objective factors, the company's internal decisions also played a role in the rising costs.
In 2019, the company achieved a significant reduction in staff costs amounting to 531 million VND, primarily due to decreased salary allowances for managers and departmental staff This reduction was facilitated by a reorganization of the department's structure and a decrease in the number of employees regularly receiving production materials, which was integrated with workshop statistics Additionally, the company implemented a policy to cut back on travel expenses and meal allowances for factory and department employees, resulting in an overall cost reduction of 33.1%.
Depreciation of fixed assets increased to 527 million VND, at the rate of 14.9% in
2019 compared to 2018, the reason is that some machines have been operating continuously
Production operations, such as welding and cutting, run 24/7, with machine costs largely determined by the company's annual depreciation rate, resulting in minimal fluctuations in fixed asset expenses Consequently, rising production costs can be attributed to increased electricity prices and inefficient management of raw material costs, as well as external procurement expenses Additionally, inadequate organizational and technical standards in construction contribute to extra costs related to surrounding and storage.
Additionally, the loan must be repayable as the capital is utilized by the customer, leading to stagnant internal allocations Investment projects that faced challenges in recovery many years ago remain unresolved.
In 2019, the company's external service costs rose by 437 million dong, marking a 38.1% increase compared to 2018 This surge was primarily attributed to the need for repairs on damaged lathes and corrugated iron, necessitating external purchases Additionally, the rise in state electricity and water prices over the past year contributed significantly to the overall increase in the company's expenses.