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Poor cost management of company a

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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 i 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 ii TABLE OF CONTENTS TABLE OF CONTENTS iii LIST OF TABLES vi LIST OF FIGURES vii CHAPTER 1: PROBLEM CONTEXT 1.1 COMPANY OVERVIEW Main objectives Sustainable Development 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 iii 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 iv ABBREVIATION ISO: International Organization for Standardization HR: Human Resource BOD: Board Of Directors v 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 vi 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 vii 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 area suffers great regions in the Southeast Soil is the lowest of the weather most suitable soil types for rubber cultivation natural conditions disadvantages in soil conditions The unfavorable natural conditions have made it unfavorable so the company's output is low difficult for the company to increase output in natural conditions leading to losses in the period of order to increase revenue If compared with low selling price.‖ 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 Mr Cuong ―The unfavorable conditions of The unfavorable conditions of the general market and the company's resources have made unfavorable Market the general market and the it difficult for the company to create a great conditions Resources company's resources have made business collection In the last two years, the it difficult for the company‖ worst results also came from the significantly decrease in the ―significantly decrease in the decrease in the number of workers serving the number of latex extraction, reducing the total output from workers Recruitment 70 number of workers serving the the gardens As a result, the reduction of input latex extraction, reducing the materials leads to a decrease in the number of total output‖ final products produced Currently, the area around the company opens a lot of industrial parks and services With more monitoring attractive salaries, it has created many production costs ―while companies can overcome challenges for businesses to recruit workers and the losses by controlling the retain them Recruiting new workers will also increase cost create great recruitment costs, while companies efficiency Cost management 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 71 management of production costs‖ What is the status of rubber exploiting workers at company? This situation affects what the company's production and business activities? ―The decrease in rubber latex Ms Yen The latex exploitation business has suffered decrease in the High turnover rate price has caused a shift in jobs losses due to the decrease in the number of number of among workers working in workers exploiting rubber latex The decrease in workers natural rubber latex exploitation‖ rubber latex price has caused a shift in jobs exploiting rubber among workers working in natural rubber latex latex exploitation When prices decrease, revenue and profits decline, so the bonus and welfare regimes company's are not like the golden period The decrease in recruitment the number of workers made it difficult for the policy company to maintain and fully deploy the ―The garden The company's recruitment policy remains the same and has not changed according Recruitment policy to the current shift so it is difficult to meet the company's recruitment policy remains the same and has not changed according to the 72 required number of workers current shift‖ Most of the workers quit their jobs at young working age, the dynamic force wants to change ―It is not easy for the company to jobs In the current difficult situation, the recruit the right workforce as company retains simple recruitment policies expected‖ 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 What are difficult conditions for growing rubber trees of the company? Mr Hoang Anh “Bad soil is in the bottom groups Company A does not have good conditions for conditions for planting rubber trees Bad soil is in the bottom planting rubber Resources groups of the soil that is not suitable for rubber trees of the soil that is not suitable for rubber trees‖ trees, although they can still be planted The latex yield in these places will not be as high as 73 in good soil In addition, the climate is close to ―the climate is close to the sea, the sea, dry and sandy Wind is not suitable for dry and sandy Wind is not rubber trees suitable for rubber trees.‖ In your opinion which is the most important cause for this situation? Mr Cuong In the problems the company faces that lead to the losses of production and business activities, high cost Cost high cost is a key issue Production and business “Production and business costs increase‖ costs increase over the years while the company difficulties in Price ―facing many difficulties‖ is facing many difficulties in price, quality of price, quality of Labor “The cost management is not gardens as well as labor The cost management gardens as well as Quality really effective, still applying the is not really effective, still applying the labor traditional management.‖ traditional management The company does not ―The costs incurred are much thoroughly perform each step in cost cost management Cost management management The costs incurred are much 74 higher than the plan.‖ higher than the plan Mrs Thuy 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 ―Good cost control would reduce jobs for people, companies need to have new policies for recruiting workers, costs also need to cost management Cost management the company’s losses, gradually be controlled to reduce unnecessary costs control improve However, with the disadvantageous trend of performance in the production of labor mobility and the market price, it is difficult tapping latex.‖ 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 75 the company’s How is the company's cost management situation? “The company relies on the Mr Nghia targets of the plan that the Parent The planned costs that the company gives out Company issues for the entire annually to serve as a standard for the industry, based on the large implementation of the costs are inefficient The inaccurate plan Cost management companies that give out the company relies on the targets of the plan that the planning data This will not be Parent Company issues for the entire industry, Save cost true for the company, as each based on the large companies that give out the company in different localities planning data This will not be true for the will be affected by factors such company, as each company in different localities as will be affected by factors such as price, basic employees, amount of production salary of employees, amount of production costs, taxes.‖ price, basic salary of costs, taxes Therefore, with inaccurate plan construction, the implementation of actual costs “the implementation of actual will lead to much deviation, making it difficult costs will lead to much deviation, to save costs making it difficult to save costs.‖ 76 What is the most reasonable solution for the current situation of the company? Mrs Thuy The top managers in the departments, especially those in the finance and accounting department, “need to be trained to understand as well as the supervisory board and the board of need to be trained the costs involved in production general directors, need to be trained to and business and must have the understand the costs involved in production and managers of each necessary skills‖ business and must have the necessary skills department Once the nature of the situation is understood and assessed, the managers of each department better control “Given the company's current will make reasonable decisions to better control costs at each situation, training will be more costs at each stage affordable in terms of cost and stage Given the company's current situation, training time than improving a cost will be more affordable in terms of cost and time management system‖ than improving a cost management system Two consecutive years of losses along with other ―needs to quickly fix business large capital construction investments, the 77 company needs to quickly fix business results in results in the coming year to the coming year to ensure cash flows, as well as ensure cash flows‖ problems with borrowing costs of the company 78 LIST OF REFERENCES (1) Obigbemi IF The impact of product price changes on the turnover of small and medium enterprises in Nigeria BRAND Broad Research in Accounting, Negotiation, and Distribution 2010 May 11;1(1):60-79 (2) Obigbemi IF The impact of product price changes on the turnover of small and medium enterprises in Nigeria BRAND Broad Research in Accounting, Negotiation, and Distribution 2010 May 11;1(1):60-79 (3) Khin AA, Chong EC, Shamsudin MN, Mohamed ZA Natural rubber price forecasting in the world market Paper in agriculture sustainability through participative global extension, Putrajaya 2008 Jun 15:15-9 (4) Nguyen TT Solutions to improve the value added of the rubber value chain in the Central Highlands of Vietnam Australasian Agribus Persp 2018;21:89-97 (5) Seppänen M Empirical classification of resources in a business model concept Intangible Capital 2009;5(2):102-24 (6) Verheye W Growth and production of rubber InLand use, land cover and soil sciences 2010 UNESCO-EOLSS Publishers (7) Vietnam Rubber Group Technical management process In 2020 (8) Hossain MS, Rahman ST, Labony SS Effects of recruitment and selection process on employee turnover and its consequence on organization’s profitability—a study on financial sector of Bangladesh Eur J Bus Manag 2015;7(35):36-44 (9) Mustapha AM, Ilesanmi OA, Aremu M The Impacts of well Planned Recruitment and Selection Process on Corporate Performance in Nigerian Banking Industry (A Case Study of First Bank Plc 2004-2011) International Journal of Academic Research in Business and Social Sciences 2013 Sep;3(9):633-48 79 (10) Tongkaemkaew U, Chambon B Rubber plantation labor and labor movements as rubber prices decrease in southern Thailand (11) Gordon K Poor Recruitment Decisions-What is the cost impact to the Organisation A case study on an Organisation within the Financial Services Sector (Doctoral dissertation, National College of Ireland) (12) Vietnam Rubber Group Technical management process In 2020 (13) Tongkaemkaew U, Chambon B Rubber plantation labor and labor movements as rubber prices decrease in southern Thailand (14) Alothaim AM Overview of management accounting techniques 2017 Apr (15) Blocher EJ, Chen KH, Li TW Cost management: A strategic emphasis (ed.) 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