(TIỂU LUẬN) EVALUATING THE COST MANAGEMENT AT g6 ENGINEERING CONSULTANTS COMPANY LIMITED

THAI NGUYEN UNIVERSITY INTERNATIONAL SCHOOL EVALUATING THE COST MANAGEMENT AT G6 ENGINEERING CONSULTANTS COMPANY LIMITED An Undergraduate Thesis Presented to The Department of Economics and Management International School of Thai Nguyen University The Socialist Republic of Vietnam In Partial Fulfillment Of the Requirements for the Degree Bachelor of Sciences Major in Accounting & Finance By NGUYEN THI THUY TRANG Thai Nguyen, 2021 THAI NGUYEN UNIVERSITY International School UNDERGRADUATE THESIS APPROVAL Part A – Candidate’s Information (To be completed by the candidate) Full name: Nguyen Thi Thuy Trang Class: AFK6 Student’s ID: DTQ1653403010094 Email Address: trangnguyen98bn@gmail.com Telephone No.: 0339740111 Title of Thesis (print in BLOCK letter): EVALUATING THE COST MANAGEMENT AT G6 ENGINEERING CONSULTANTS COMPANY LIMITED Part B – Supervisor’s Recommendation for Final Defense (To be completed by the supervisor) I have checked the candidate’s Thesis and hereby recommend to the committee for the final defense Supervisor’s Name: Department: Supervisor’s Signature: _Date: _ Part C – Submission of Thesis (To be completed by the candidate) I hereby submit two (02) copies of my Thesis which have been checked and recommended by my supervisor and through the Head of Department for final defense Candidate’s Signature Date ii DECLARATION OF ORIGINALITY I, Nguyen Thi Thuy Trang, hereby declare that this thesis and the work reported herein was composed by and originated entirely from me Information derived from the published and unpublished work of others has been acknowledged in the text and references are given in the list of sources This work presented here has not been previously presented at this or any other university for similar purposes Date of submission (dd/mm/yyyy): 19/03/2021 Signature of declarer: _ iii ACKNOWLEDGEMENTS I would like to extend thanks to the many people who so generously contributed to the work presented in this thesis Special mention goes to my enthusiastic supervisor, M.A Vu Thuy Ha My study has been an amazing experience and I thank her wholeheartedly, not only for her tremendous academic support, but also for giving me so many wonderful opportunities Similar, profound gratitude goes to Ngo Tao Duc, who has been a truly dedicated mentor I am particularly indebted to him for his constant faith in my lab work, and for his support when so generously hosting me in G6 Engineering Consultants Company Limited I have very fond memories of my time there Finally, but by no means least, thanks go to mum, dad for almost unbelievable support They are the most important people in my world and I dedicate this thesis to them iv TABLE OF CONTENTS DECLARATION OF ORIGINALITY iii ACKNOWLEDGEMENTS iv TABLE OF CONTENTS v LIST OF ABBREVIATIONS viii LISTS OF TABLES AND CHARTS .ix ABSTRACTS .x TÓM TẮT xi CHAPTER 1: INTRODUCTION .1 1.1 Introduction 1.2 Background of the study .2 1.3 Statement of the problem 1.4 Research questions, objectives 1.4.1 Research questions 1.4.2 Objectives 1.5 The Significance of the study 1.6 The Scope and Limitations of the study .4 1.6.1 Research scope 1.6.2 Limitations of the study 1.7 Definition of terms CHAPTER 2: REVIEW OF RELATED LITERATURE AND STUDIES 2.1 Related literatures 2.1.1 Theoretical basis on the cost management in the enterprise 2.1.2 The concept of cost in strategic management .8 2.1.3 Production costs and cost classification in the enterprise 10 2.2 Related studies .14 v CHAPTER 3: RESEARCH METHODOLOGY 3.1 Data collection methods 3.2 Data processing methods CHAPTER 4: FINDINGS AND DICUSSION 4.1 Overview about G6 Engineering Consultants Company Lim 4.1.1 Introduction about G6 Engineering Consultants Company Limited 4.1.2 Functions, duties and business area of the company 4.1.2.3 Labor resources 4.1.2.4 Business performance at G6 Engineering Consultants Company from 2017 to 2019 4.1.2.5 Organizational structure of the management apparatus 4.1.3 Product characteristics 4.1.4 Cost classification at G6 Engineering Consultants Company 4.2 Cost management at G6 Engineering Consultants Compan 4.2.1 The general evaluation of cost management at G6 Engineering Consultants Company Limited 4.2.2 Evaluating the cost management at G6 Engineering Consultants Company Limited 4.2.2.1 Advantages and disadvantages of the cost management at G6 Engineering Consultants Company Limited 4.2.2.2 The impact of the cost on the business performance 4.2.3 Some solutions to improve the cost management for G6 Engineering Consultants Company Limited CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 5.1 Conclusions 5.2 Recommendations vi REFERENCES 43 vii No Abbreviation ISO SI HI TU UI VND WTO viii LISTS OF TABLES AND CHARTS Table 2.1 Compare the role of cost management and cost accounting Table 2.2 Comparison of past and present business environment Table 4.1: Business results of the G6 Engineering Consultants Company from 2017 to 201919 Chart 4.1: Organization of management apparatus at G6 Engineering Consultants Company 21 Table 4.2: Business expenses at G6 Engineering Consultants Company from 2017 to 2019 .26 Table 4.3 Analysis of production costs in the company 29 Table 4.4 General administration expense analysis table 31 Table 4.5 The result of business activities in the period from 2017 to 2019 33 ix Title: EVALUATING THE COST MANAGEMENT AT G6 Researcher: Degree Nam/ Address of the Institution Date Completed Adviser ABSTRACTS The competitiveness of the market economy in the context of deep integration with the international economy makes the level of competition more fiercely To stand on the market requires businesses to plan the right strategy and make effective business decisions These charges decisions are based on the usefulness of cost information provided by a cost-effective accounting model Capital construction is a specialized industry, production process and construction products have specific characteristics and that has a great influence on the quality of construction products, cost in construction enterprises However, most businesses have not built a system of cost management criteria, so that no information on cost fluctuations This thesis explores cost management in today at G6 Engineering Consultants Company Limited and suggests complete solutions x Service costs purcha Other expense items Total production costs From the results in the table above, we can see that the production cost in 2019 increased 931.0 million VND compared to 2018, corresponding to an increase rate of 10% Therefore, the company has managed the usage expenses in the works and departments that are not well managed The cost of materials in the works increased by 380.0 million VND, at 16.1% due to the materials supplied to the sites that have not been directly checked, but only on the basis of the supervisor after having the stock release paper materials, go to the warehouse to receive materials and bring them to the construction works On the other hand, the increase in this cost is also due to the fluctuation of the market price in the past, making the material price increase, which is an objective factor that cannot be avoided The first reason for the increase in raw material costs is that the prices of some corresponding input materials have increased significantly Such as iron, steel, cement, oil, electricity However, if we ignore the above objective factor, the increase in the cost of this item must include the subjective impact of the company The decrease in staff cost is 531 million VND due to the decrease in salary allowances of managers and departmental staff at the company last year The company has rearranged the organizational structure of the department and reduced the number of employees who regularly receive materials for production, which is combined with the workshop statistics The company has a regime to reduce a number of regimes on travel expenses and meals for factory and department employees Hence in 2019 the cost dropped to 33.1% Depreciation of fixed assets increased to 527 million VND, at the rate of 14.9% in 2019 compared to 2018, the reason is that some machines have been operating continuously 29 24/24 hours for production such as welding and cutting machines Since the cost of using the machine in the year is determined by the company as the depreciation rate of the fixed asset in the year, this item is almost unchanged, and accounts for a small proportion in the structure of expenses incurred in the year Thus, the increase in production costs is partly due to the increase in electricity prices, partly due to the poor management of raw materials costs used in management and other costs purchased from outside Moreover, the organizational and technical level in construction is poor, so there are additional costs of surround and storage In addition, the loan must be payable because capital is occupied by the customer, the capital is stagnant internal appropriations; investment projects that were difficult to recover many years ago have not been fully resolved Service costs purchased from outside in 2019 compared with 2018 increased by 437 million dong, increased by 38.1% due to damaged lathes and corrugated iron so the company had to buy from outside for repair The increase in electricity and water prices of the state in the past year is also the reason for the increase in the company's expenses Other expense items: Most of selling expenses, business management costs incurred in the year are used to cover long-distance business trips, compensation expenses, guest reception costs, management staff expenses Therefore these expenses require the company to be used effectively, which means weighing costs against the possibility of contracting or additional revenue In addition to expenses, the company has to spend some expense such as gasoline, motorbike price increasing day by day Therefore, the reason for the low management of production costs of the company is mainly due to increased production costs, which is a huge limitation in the organization of production of G6 Engineering Consultants Company in general and of the other businesses in particular Especially, the management of materials in the company is very loose, causing serious waste Thus, to strive to increase profits in the coming years requires the company to have many measures to manage costs in the production process 30 4.2.1.3 General & administration expenses: It is the expenses for the management apparatus of the enterprise, the expenses related to the general operations of the enterprise such as the depreciation of fixed assets serving the management apparatus, the cost of tools and tools, the expenses Other fees incurred throughout the enterprise such as salaries and salary allowances paid to staff of management departments, costs of raw materials, office supplies, taxes, fees, insurance, expenses service fees purchased from outside the office and the cost of provision for devaluation, inventory, provision for bad debts, business trip expenses, transaction costs, external relations in the company, general and administration expenses is summarized as follows: Table 4.4 General administration expense analysis table Raw materials Staff expenses Cost of depreciation of fixed assets Taxes, fees, interest expenses Costs for conferences, reception, and transaction Other expenses (electricity, water, telephone cost…) Total administrative expenses The data in the table above shows that the administrative expenses of the company in 2019 increased compared to 2018 by 578.0 million VND, corresponding to an increase of 8.4% with the turnover achieved This increase is due to the increase in other cash expenses, tax costs, fees, interest expenses, conference fees, guest reception, and transactions also increased But besides that, costs of materials, management staff costs, and depreciation of fixed assets are reduced The cost of materials and tools in 2019 decreased by 228.0 million VND, the rate of 43.6% compared to 2018 because the company in the year reduced the number of materials, 31 stationery and specialized tools in construction and installation, reducing conference costs, receiving guests, and transaction The cost of the management staff is reduced by 6.9% because the company has closely arranged the organizational work in the departments, implementing the working regime of 40 hours/week, according to shifts The company's apparatus has been adjusted and somewhat reduced, more flexible than before Decreased depreciation costs of fixed assets because the departments not have new computer systems as in previous years, so the depreciation is negligible On the other hand, fixed items such as tables, chairs, and document cabinets were also not renovated, so this cost decreased in 2019 by VND 185.0 million, a rate of decrease of 17.3% Expenses for services purchased from outside: Tax, fee, interest expenses increased by 110.0 million VND Expenses for conferences, receptions, and transactions increased by 280.0 million VND In addition, the cost of buying from outside the company includes many items, including the cost of electricity, water, telephone used for production and the management department of the company increased by 402 million VND, These expenses are still wasted and used without a sense of saving 4.2.2 Evaluating the cost management at G6 Engineering Consultants Company Limited 4.2.2.1 Advantages and disadvantages of the cost management at G6 Engineering Consultants Company Limited * Advantages: First of all, it must be striving to promote the consumption of products and goods in sales Especially, creating confidence for the corporation and customers, which will help the company in the coming time more favorable in signing contracts At the same time, it also proves that the company has autonomy in finding customers, especially investment direction for products The team of unified company officials agreed to have experience in production 32 Second, with the direction of in-depth investment, gradually improving production capacity is also the right direction, although not promoting efficiency in the past year, but is a fulcrum to improve profits in the coming years Simultaneously with the above capital management situation proves that the company has made many positive innovations in capital management * Disadvantages: Besides the advantages in 2019, the company also has some shortcomings that need to be overcome Inadequacies in the production process for a long time have not been resolved, leading to a high production cost of the company, and a large amount of waste, resulting in a large product cost Especially in raw material cost management is the main reason why the company's profit is not commensurate with its potential 4.2.2.2 The impact of the cost on the business performance Table 4.5 The result of business activities in the period from 2017 to 2019 Revenue Total expenses Profit Profits are the end result of production and business activities The higher the profit, the more businesses assert themselves their position and existence in the market economy When revenue increases, costs may increase but slow growth leads to lower cost ratios If the labor productivity of enterprises increases, businesses will save living labor, or save wages At the same time, increasing labor productivity will have conditions to increase employee income, but the cost of wages will have to increase slower than the growth rate of labor productivity, so that is reasonable and cost savings 33 However, if it is only through high or low profits that the business earned during the period to evaluate the quality of good or bad business operations, it sometimes leads us to the wrong conclusion, because these profits are not commensurate with the amount of costs spent and the amount of assets that the business has used For example, the investment in machinery, equipment and tools in a certain period will increase the costs of the business However, the appropriate investment with the role of improving service quality will attract customers quickly and thus will promote the effect of the investment Therefore, the cost increasing is not necessarily a bad thing for businesses When costs increase, revenue and profit increase clearly shows the development and expansion of the company's business 4.2.2.3 Development direction of the company in 2021 With the successful momentum that the company has gained over the past year, to increasingly consolidate its foothold in the market and improve the company's production and increase the value of the G6 brand Based on the orientation of G6 Engineering Consultants Company until 2025, based on the market demand, the company plans to develop a production and business plan for 2021 In 2021, the company's production and business faced the following main difficulties: The price of materials of all kinds increases suddenly such as: iron, steel, plastic affecting the implementation of economic activities and the implementation of production and business In addition, Covid-19 pandemic also affects the revenue of some enterprises * Business direction in the coming year: The company sets production and business targets in 2021: revenue is 130 billion VND With such high strives, it is required that the company must take practical measures to achieve the best results 34 Any business, in order to survive and carry out production and business activities, must spend expenses As a business operating in production and business activities, the cost structure is often unstable between periods In addition, under the strict direction of the director, there are a few points in the cost structure to calculate the costs of the company and should strive for in the coming year: Maintain and develop products suitable to the capacity of machines, equipment, workers and markets Participate in construction bidding in the area Develop commercial business and other business activities Bring into full play the dynamism and creativity of many individuals and units in business activities Actively solve problems in debt payment, advance Implement cost saving measures to lower product prices, increase market competitiveness and ensure business efficiency 4.2.3 Some solutions to improve the cost management for G6 Engineering Consultants Company Limited First: Strictly managing materials Due to the changes in the unit price of raw materials, the costs of storage, handling and transportation also increase, affecting the cost of the product, the company needs to take specific measures such as: finding the market in which the materials are available the relation between supply is greater than demand, the price will be more reasonable On the other hand, the company also needs to research the purchasing method, payment method, transportation, loading and unloading in accordance with the lowest possible cost However, the right price must go hand in hand with high quality There is a new way to ensure the construction quality with high quality standards at low cost 35 Because the direct material cost item accounts for a large proportion of the total production cost of the company, the company still uses it wastefully for many years, not only reducing the company's profit but also making reduce product competitiveness If managing this item well, the company's resources will grow stronger Therefore, the need to strictly manage this item, the most important and practical thing for the company to reduce costs in the coming years Especially in 2019, the proportion of additional construction and installation projects increases, so the cost of raw materials used will increase, so this requirement becomes more urgent: While assigning contracts to each implementing unit, instead of assigning the price of the entire contract to the implementing units, detailing each specific cost item in both value and quantity of each cost item as shown in the contract's cost estimate After settlement, each contract, the company must compare each actual cost item with the plan of each contract, determine the cause of profit and loss, and the implementing unit must explain the costs arising Establishing a product quality inspection department, in which a part specializes in checking the quality of raw materials' inputs In order to overcome the management of raw materials while being put into use, it is often damaged and consumes more than expected For example, welding electrodes are of good quality, use longer than poor quality electrodes This is not only the basis for creating a good product but also solves cases where it is not guaranteed to be dismantled At the same time, this also reduces travel and transportation costs during the purchase process Manage inventory of raw materials must be strictly from the import, storage, and export stages, to avoid material exchange When leaving or entering the warehouse, it is necessary to present relevant documents, when bringing the materials out of the warehouse, there must be a release note or the export order of the construction team leader To this, the company must assign responsibility to each specific subject for the preservation of materials 36 in each specific stage In particular, when leaving the warehouse, there must be a written request for release of the authorized person (usually the director of the business), specifying the specific quantity and type to ensure compliance with the technical norms of each suit copper Price control in the current unusual volatile conditions is still facing many difficulties It is necessary to establish inspection teams to patrol the market regularly Building a marketing team in addition to advertising the company's brand is also responsible for penetrating the market to detect fluctuations and must have a regular report to the company every week, every month… For construction projects in remote and rural areas, because the company has not had any appropriate measures to manage this expense item, in addition, the workforce is working on the projects It is mostly outsourced, so it is not conscious to protect the company's assets, resulting in loss Therefore, the company must increase the sending of engineers to the site to supervise and administer the work Besides, it is necessary to send a team of skilled workers to the works, in addition to operating the work they can also supervise, watch and remind some outsourced workers Establish a construction protection division tasked with protecting construction materials, equipment, machinery and tools and tools Make sure to comply with the regulations at the company as well as the regulations at the site In addition, the company should have policies to encourage and promote creative ideas for contracts that comply well with the regulations on production costs according to the rate of completion This will encourage the workers to be more accountable for their work Second: Having a capital investment plan to renovate machinery and equipment Expanding production scale, buying new machinery and equipment is indispensable for the company Currently, machinery and equipment at the company are in use But due to the production and construction characteristics of large projects, but the construction time is 37 continuous and long, so machinery and specialized vehicles must work continuously, if there is no plan to renovate, it will be a few years also worn out Therefore, the investment in renovating machinery and equipment, applying modern technology to replace old machines and technology is an inevitable measure in corporate governance The replacement of modern machinery and technology will significantly reduce the consumption of raw materials, increase labor productivity, and reduce production costs Third: Promoting the role of finance in checking and monitoring cost usage, especially depreciation expense and other monetary expenses To expand production and business activities, the company's fixed assets should be focused on innovation Although it has not yet been rebuilt, it should be upgraded gradually to ensure that the construction works, machinery systems, transport vehicles and cranes are invested This is a favorable condition for the company to contribute to saving raw material costs, electricity costs and labor costs, facilitating lower production costs, improving competitiveness with companies or contractors in the same industry Besides, the expenses purchased from outside at the company include many items, of which mainly the cost of electricity, water, telephone used for production and the management department of the company These expenses are still wasted and used without a sense of saving Therefore, the company needs to raise awareness for each worker to reduce these costs The company should organize the dissemination of responsible use of company assets by using electricity and water in an economical manner and take measures to deal with cases of use of corporate phones on personal things Fourth: Increasing implementation of new projects With a consumption plan in 2021 set with revenue of 130 billion (VND), most of it is an increase in construction projects of bridges, roads, houses, schools This indicator can be improved if it knows how to make use of its production resources with the following 38 implementation directions: Instead of only doing construction of to projects at a time, the company can increase more workers split works to speed production and contract costs while bringing in more projects The company should strengthen the establishment of a marketing system as well as promote products on the mass media such as radio, newspapers, and leaflets Especially should open a separate website to link consumer markets everywhere Moreover, the company can also hire a broker to improve the ability to sign contracts Take measures to encourage organizations and individuals inside and outside the company to act as brokers in the sale of products by deducting the commission rate for each contract value for the company brokers To be more proactive in price policy, depending on their production capacity, they can set prices lower than planned but must ensure profit If the price is too high, making it difficult to sell, the company should use other after-sales services to attract customers Expand consumption markets across the country and strengthen the signing of large contracts with key provinces To this requires the company to have measures to survey market needs, product characteristics, and prices in these areas by the staff of the company or hiring experts In particular, improve the capabilities and functions of the Marketing Department in understanding and evaluating the market Fifth: Improving product quality Well-organized production in enterprises, this is a necessary condition for products to be more complete: Each project has a production team leader who manages working days, hours as well as the quality of work done by workers in shifts Since then at the end of the month or quarter, there will be specific reward measures to each individual Increasing the proportion of machines instead of direct labor to improve the accuracy and durability of products as well as improve labor productivity 39 Applying the new quality management system, bringing the ISO 9000 management system into product quality management Therefore, it is required that the company's product quality control department must be more active in managing the quality of inputs and outputs of products Improving the skills of workers: Regularly training and retraining the contingent of workers Organize sightseeing, study, at units of the same industry Hire experts to train, introduce and guide the use of new techniques Organize competitions of good skills from team and team levels to discover typical factors contributing to improving skills and accumulating experience for workers Organize rank-holding contests before promotion In the process of production and business, regularly create conditions for workers to promote initiatives and, in addition, improve the quality of life for employees in both health and spiritual life Along with improving product quality, the company also differentiates its products from other products: design, delivery speed, reliability and perfection of product information, creating peace of mind for users 40 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 5.1 Conclusions Cost management is a very important and necessary content in the business management system, contributing to asserting the accounting system's function of providing information in management, as well as helping businesses Good goal of maximizing your profits The cost management at G6 Engineering Consultants Company are still very limited, so finding out and offering solutions completing cost management in this enterprise is very necessary, this is not only necessary in each enterprise but also a common problem of most businesses in Vietnam today On the basis of research, synthesis, analysis, both in theory as well as in practice, the thesis has solved some of the following contents: Firstly, systematizes the basic theories about cost management as a premise for assessing the current situation and finding solutions to overcome the problems of cost management at G6 Engineering Consultants Company Limited Secondly, reflecting the actual cost management of G6 Engineering Consultants Company Limited, from which realizes the positive points, the limitations that need to be improved and the solution to overcome those limitations Third, in order to complete the cost management at G6 Engineering Consultants Company Limited, the thesis has proposed solutions: managing materials, renovating machine and equipment, monitoring expenses usage, increasing implementation of new projects and improving the product quality The thesis has met the research objective However, due to the limited time as well as the limited knowledge, the work cannot avoid many shortcomings, looking forward to receiving the comments of the teachers and the company leaders to make the topic more complete 41 The topic just stops at understanding cost management at G6 Engineering Consultants Company However, the cost management work has only been mentioned recently and is still quite new to Vietnamese businesses; the implementation of cost management still faces many difficulties and solutions completing cost management at the unit drawn from theoretical and practical research This is a broad and complex topic, the implementation time as well as the practical approach is limited, so this article has not been able to thoroughly solve all problems In the future, if given favorable conditions, I would like to continue to research more deeply in order to further improve the cost management at the company 5.2 Recommendations Whether the cost management is really effective or not is mainly due to the company's own efforts and efforts to improve the organization of the cost management apparatus To achieve this, first of all, the company needs to have more closely directed and supervised by the Director to departments, especially the accounting department in recording revenue and expenses, but still ensure the accounting principles of caution without distorting the business results of the business Fostering and improving the qualifications of employees to meet the company's requirement of improving cost management The company needs to further improve the professional skills and qualifications of the accountants Currently, the Ministry of Finance has issued and changed many legal documents, requiring accountants to regularly update and grasp information, guidelines and policies of the Ministry and the State 42 REFERENCES Quan Thi Phuong Dung (2019), “Cost management at Mining Company Limited – Dong Bac Corporation”, MBA thesis, Hanoi Vu Quoc Duong (2017), “Cost and revenue accounting at Tran Anh Digital World Joint Stock Company", MBA thesis, University of Commerce Nguyen Trong Binh (2018), “Completing cost and revenue accounting at AIC commercial joint stock company'', MBA thesis, Hanoi Nguyen Thi Phuong Loan, “Cost management” Available at: thuvien.due.udn.vn Ph.D Huynh Loi and Ph.D Nguyen Khac Tam, Cost Accounting, 2002 Documents provided by G6 Engineering Consultants Company Limited Some other theses 43 ... classification at G6 Engineering Consultants Company 4.2 Cost management at G6 Engineering Consultants Compan 4.2.1 The general evaluation of cost management at G6 Engineering Consultants Company. .. basis for cost management in G6 Engineering Consultants Company Limited Overview of the current situation of cost management at G6 Engineering Consultants Company: analyzing, evaluating the results,... 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