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 as foreign enterprises invest more freely in the Vietnamese market To thrive in this environment, 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 and ensure sustainable growth.
Cost serves as a crucial quality indicator that reflects an enterprise's production situation For businesses seeking viable revenue-generating ideas, it is essential to manage costs in a reasonable and economical manner that accurately represents the production landscape By correctly 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 adopt modern management systems, with economic management science and accounting playing vital roles Effective cost collection is crucial for measuring operational efficiency, making cost management a key component of corporate accounting Consequently, ongoing research and refinement of cost theories and practices within the Vietnamese enterprise accounting system are essential in today's business environment.
In evaluating the business situation at G6 Engineering Consultants Company Limited, it is crucial to focus on cost management, which plays a vital role in both practical application and theoretical understanding This research aims to provide insights into effective strategies for improving financial performance and operational efficiency within the company.
Cost Management at G6 Engineering Consultants Company Limited" as the research subject for my thesis.
Background of the study
Vietnam, alongside the global community, is making significant strides towards development, aiming to create a happier and more prosperous world With a rich cultural heritage spanning a thousand years, Vietnam is committed to building a socialist-oriented market economy This dedication to national enrichment has led to the construction of various infrastructures, including buildings and roads, which enhance the quality of life by meeting essential needs such as food, clothing, housing, and travel As a result, the construction industry is experiencing robust growth, reflecting the nation's positive development momentum.
The construction industry in Vietnam has experienced steady growth, largely driven by the thriving real estate sector and rapid urbanization With a consistently high demand for construction, the government aims to enhance infrastructure investments to support overall growth and improve regional connectivity through transport development Additionally, there is a strong push for large-scale industrial projects, as domestic manufacturers increase investments in factories and production facilities Despite the rising occupancy rates in key industrial zones, Vietnam still possesses a substantial industrial land bank.
Accountants play a crucial role in delivering detailed cost information, enabling corporate administrators to make informed decisions regarding pricing, investments, and production planning Effective cost management is essential for establishing robust information systems within corporate operations and internal management It serves as a scientific and efficient tool, facilitating the timely processing and provision of cost-related data to meet the informational needs of administrators.
Statement of the problem
This thesis proposal focuses on examining the overall 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
- 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 utilize cost management theory to assess the current cost management practices at G6 Engineering Consultants Company Limited By doing so, the aim is to identify opportunities for cost improvement, ultimately enhancing executive capabilities and streamlining business operations for greater efficiency.
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 existing results and limitations This review highlights the key problems affecting financial efficiency within the company To address these issues, the writer proposes targeted solutions aimed at enhancing cost management practices, ultimately fostering improved financial performance and operational effectiveness.
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 and has only recently gained attention The implementation of effective cost management faces several challenges, and solutions derived from both theoretical and practical research are essential for improvement Due to the complexity of this topic and limited time for practical application, this article does not fully address all related issues However, with better conditions in the future, further research is anticipated to enhance cost management practices within the company.
Definition of terms
Costs represent the monetary resources a company expends to create and market a product, encompassing both production and market introduction expenses In contrast, the price is the amount a customer pays for the product The profit a business generates 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 other organizational factors.
An expense manager goes beyond merely tracking costs; they are crucial in guiding management decisions to ensure that customers receive high-quality products and services at the most competitive 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 regulations and market fluctuations 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 This acceptance enables companies to manage their costs, including raw materials, labor, and other expenses, while also informing strategic decisions regarding production outputs such as 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, innovative features, diverse designs, and comprehensive services To meet these demands effectively, businesses must develop strategies that balance quality with cost management Effective cost management is crucial; if not properly analyzed, even high-quality products can become overpriced, leading to customer dissatisfaction.
To meet customer preferences, businesses are shifting their production and operations to align with customer needs This transformation involves restructuring organizations into functional divisions, such as research and development, production, delivery, warranty, and repair Consequently, cost management practices will also evolve, with each department responsible for its own operating expenses The effectiveness of these divisions will be assessed through reports that accurately reflect their performance in relation to incurred costs.
Table 2.2 Comparison of past and present business environment
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 fixation involves categorizing expenses directly into the relevant expenditure group, such as raw materials and direct labor costs associated with production These direct costs are straightforward to calculate when analyzing the overall cost of a product or service.
Cost allocation involves assigning indirect costs to specific cost groups or subjects that incur those expenses Since these indirect costs can be challenging to quantify accurately for the recipient, they are typically allocated based on a reasonable basis, such as joint usage 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 indirect costs in departments is determined by the number of machine hours worked, which reflects the hours contributed by direct labor.
To simplify calculations, cost administrators often utilize the average indirect cost method, where total indirect costs are divided by the quantity produced, assigning each product an equal share of costs However, this approach fails to accurately reflect the actual consumption of cost factors for individual products or services.
2.1.3 Production costs and cost classification in the enterprise
The production and business activities of an enterprise involve utilizing various factors of production, such as labor, materials, and resources, to generate products and employment opportunities that satisfy societal needs During this process, the enterprise consumes some of its resources, leading to incurred costs while simultaneously creating new resources in the form of jobs and products.
Cost represents the monetary value of the total waste associated with both living and physical labor during production and business activities It can also be viewed as the economic expense related to the specific resources utilized in these processes.
In financial accounting, costs refer to the expenses incurred during production and business activities within a specific accounting period These costs represent the value of resources consumed by an organization to achieve desired outcomes.
In management accounting, costs refer to the actual expenses linked to plans, products, and services These costs are analyzed specifically to evaluate departmental efficiency, which serves as a foundation for making informed investment decisions and selecting optimal alternatives.
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 or acquisition of goods These costs, known as the cost of goods sold, are recorded when the product or service is utilized If the products remain unsold, these expenses are classified as inventory costs, reflecting their status as unsold goods.
Organization of management apparatus at G6 Engineering Consultants Company 21
Functions and duties of departments
The Director of the company is responsible for setting the strategic direction and overseeing production and business projects, as well as implementing key policies Additionally, the Director makes crucial decisions regarding organizational and executive matters to enhance operational efficiency and drive business success.
The economic accounting department is responsible for organizing comprehensive financial records of the company's production and business activities in compliance with the Law on Accounting and State 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, this department ensures the company's financial benefits, encompassing salary, bonuses, revenue, and expenditures.
The department oversees the company's personnel management, ensuring effective monitoring, recruitment, and assignment of employees to appropriate roles to meet production needs It is also responsible for maintaining all company documentation, records, and books, while implementing company policies and managing reward and welfare programs for staff.
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.
G6 Engineering Consultants Company adapts its construction methods and organizational strategies to match the unique characteristics of each project, ensuring maximum economic efficiency and continuous production A notable example is the construction contract for Dong Nguyen Primary School in Bac Ninh province, alongside the ongoing renovation and repair of rural roads in Vinh Tho village, also located in Bac Ninh.
Due to the single and individual nature, the cost spent for the construction and installation of works has a different content and structure as industrial products.
Products with large volume, great value, relatively long construction time:
The timeline for construction product costs varies by project specifications rather than adhering to a monthly schedule, as seen in industrial enterprises This flexibility is evident in the payment arrangements established between G6 Engineering Consultants Company and its clients.
For G6, the price calculation typically focuses on construction products completed to the conventional stage At the end of each fiscal year, the company conducts a systematic assessment to calculate and determine the cost of these products.
Construction production usually takes place outdoors, is directly affected by environmental factors, weather, extreme climate, monsoons or storms so construction is seasonal.
Environmental and weather conditions significantly influence construction techniques, speed, and overall progress G6 Engineering Consultants Company prioritizes the protection of construction machinery and outdoor materials by implementing measures such as using building tents, canvas for shielding, and large tarps to cover equipment.
Long-term construction and outdoor activities also create many factors that cause unexpected damages to the company such as damage to back and forth, damage to stop production
Construction production is done on upheaval locations:
Construction products are typically fixed and remain on-site upon completion, unlike other physical goods that can be stored Throughout the construction process, the construction team often needs to relocate, leading to additional costs These costs include labor mobilization, the operation of construction machinery, and expenses related to temporary facilities that support the workers.
Consumption characteristics in construction and installation:
The product consumption process in construction involves delivering finished construction products directly to customers upon project completion Unlike typical physical products that are stored, G6 and its partners collaborate on-site to ensure a seamless handover of the completed work.
4.1.4 Cost classification at G6 Engineering Consultants Company
4.1.4.1 The cost of materials directly
Direct raw material costs play a crucial role in the production process and significantly impact a company's overall business results, as they are directly linked to product pricing With the majority of materials sourced externally and varying in type and value, raw material costs represent over 60% of total expenses By effectively managing these costs, companies can enhance their profitability Direct material costs encompass a range of expenses associated with acquiring essential resources for production.
Main materials: are materials involved in the manufacturing process that constitutes a product Main raw materials include: brick, sand, stone, gravel, cement, iron and steel
Secondary materials play a crucial role in the manufacturing process by enhancing the color and appearance of products, thereby improving overall quality and ensuring operational efficiency These materials, which include items such as paint, nails, and purlins, are essential for meeting the diverse needs of technology, engineering, and management.
Direct production labor cost is a fundamental component of overall product cost, encompassing salaries and various deductions related to wages Key elements of direct labor costs include social insurance, health insurance, trade union fees, and unemployment insurance for workers directly involved in production Additionally, salary deductions play a crucial role in calculating these costs.
SI: deducting 26% of the total basic salary to be paid to employees, of which 18% is included in production and business costs, 8% deducted from the total salary of employees.
TU: deduct 2% of the total basic salary to be paid to employees.
In accordance with company policy, a deduction of 4.5% from the total basic salary of employees will be implemented This includes a 3% reduction allocated to cover production and business costs, alongside a 1.5% deduction directly from the employees' salaries.
UI: 2% deduction to calculate the total basic salary payable to employees In which, 1% is included in production and business costs and 1% is deducted from the total salary of employees.
Worker costs encompass the main salary, supplementary salary, and allowances for project management staff, alongside mandatory deductions like Health Insurance (HI), Social Insurance (SI), Trade Union (TU), and Unemployment Insurance (UI) at the prescribed rates.
Tools and tools expenses: expenses for tools and tools used for general production such as: hammers, scissors
Depreciation expense of fixed assets: such as depreciation of machines, equipment,cars
Charges for services purchased from outside and other monetary costs: such as electricity and water costs, phones for general production.
4.2 Cost management at G6 Engineering Consultants Company
4.2.1 The general evaluation of cost management at G6 Engineering Consultants
Effective cost management extends beyond mere accounting; it encompasses corporate governance and production field management, addressing all incurred costs Businesses face various expenses, collectively termed business costs, which represent the monetary value of living and labor in a specific business cycle These business expenses can be categorized into multiple types, each serving distinct roles and purposes.
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
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: