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L/601/0950 Name : Do Duy Phuoc (Ben 2)
WORD COUNTNumber of Pages: 29
Number of Words:
Word count is exclusive of the followings:
Cover Page
Content Page
Citation and Referencing
Conclusion
Tables
Graphs
Titles/Headings
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
TABLE OF CONTENTS
1.0 INTRODUCTION........................................................................................................4
1.1 Types of cost..................................................................................................................4
1.1.1 Direct cost :.............................................................................................................4
1.1.2 Indirect cost :..........................................................................................................5
1.1.3 Fixed cost, step cost, variable cost and semi-variable cost :.................................6
1.2 Costing method..............................................................................................................9
1.2.1 Job costing..............................................................................................................9
1.2.2 Bath costing............................................................................................................9
1.2.3 Contract costing......................................................................................................9
1.2.4 Process costing......................................................................................................10
1.2.5 Service costing......................................................................................................10
1.3 Costs using appropriate techniques.............................................................................11
Task 1.............................................................................................................................11
Task 2.............................................................................................................................12
1.4 +2.1 Collect, analyse and present data based on the information using appropriate
techniques..........................................................................................................................14
In the figure below Cost of goods sold (COGS) = variable costs + fixed costs................14
2.2 Performance indicators to identify potential improvement........................................21
2.2.1 Cost centres.....................................................................................................22
2.2.2 Revenue centres...............................................................................................23
2.2.3 Profit centres....................................................................................................24
2.2.4 Investment centres...........................................................................................24
2.3 Improvements to reduce costs, enhance value and quality..........................................25
REFERENCES................................................................................................................29
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
List of Figures & Tables
FIGURE 1 : MINIMUM SALARY IN VIET NAM BY ZONE (VIETNAM-BRIEFING, 2010)........................................5
FIGURE 2 : FIXED COST (GOOGLE)....................................................................................................................7
FIGURE 3 : STEP COST (GOOGLE)......................................................................................................................7
FIGURE 4 : VARIABLE COST (GOOGLE).............................................................................................................8
FIGURE 5 : SEMI-VARIABLE COST (GOOGLE)....................................................................................................8
FIGURE 6 : INTERDEPENDENCE OF THE DEPARTMENTS (CASE STUDY).......................................................11
FIGURE 7 : COSTS USING APPROPRIATE TECHNIQUES.................................................................................12
FIGURE 8 : BUDGET FIGURES 2009 (CASE STUDY)......................................................................................12
FIGURE 9 : SELLING PRICE IN 2010(CASE STUDY).........................................................................................13
FIGURE 10 : PROFIT 2006-2008(CASE STUDY)...............................................................................................14
FIGURE 11 : SALES 2006-2008(CASE STUDY)................................................................................................14
FIGURE 12 : SALES VS COGS 2006-2008(CASE STUDY)...............................................................................15
FIGURE 13 : SALES VS GROSS PROFIT 2006-2008(CASE STUDY)....................................................................16
FIGURE 14 : SALES VS ADMINISTRATIVE AND SELLING EXPENSES 2006-2008(CASE STUDY)........................16
FIGURE 15 : SALES VS PROFIT 2006-2008(CASE STUDY)...............................................................................17
FIGURE 16 : ROUTINE COST FOR 2008(CASE STUDY).....................................................................................18
FIGURE 17 : WEEKLY VARIABLE COSTS(CASE STUDY)..................................................................................19
FIGURE 18 : WEEKLY FIXED COSTS(CASE STUDY).........................................................................................20
FIGURE 19 : WEEKLY ADMIN, SELLING & OTHER EXPENSES(CASE STUDY)...................................................21
FIGURE 20 : COST PER UNIT(CASE STUDY)....................................................................................................22
FIGURE 21 : GROSS PROFIT AND NET PROFIT FOR 2006-2008(CASE STUDY).................................................24
Figure 22 : ROI 2006-2008(case study).......................................................................................................25
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
1.0 INTRODUCTION
Vang company is the company that customized t-shirts. The business is operations
in Da Nang city since January 2006. In this report that show types of cost, costing
method, costs using appropriate techniques, key performance indicator; collect, analyse
and present data based on the information using appropriate techniques, improvements to
reduce costs, enhance value and quality.
1.1 Types of cost
Cost accounting that the process to analyse, establishing stock valuations, profits
and balance sheet items, planning, control and decision making. Cost centre is the part of
the organisation that inside the company and that just including the department in the
company. Cost unit is the organisation that related to the products in the company and its
concentrate only in products. The total cost of a cost unit is made up of the materials,
labour and other expenses. Cost element can be classified as direct costs or indirect costs
(management accounting and financial reporting, 2010).
1.1.1 Direct cost :
Direct cost is the cost that traced to the product, service, or department that being
costed. Direct costs are usually under the control and responsibility from the department
manager (businessdictionary). That including direct materials, direct labour and direct
expense and total direct cost is often referred to as prime cost.
Direct materials costs that the cost of the materials that have been used in
making and selling a product. For example : in the case study, Vang company must
prepare to pay to the supplier for cloth material, sewing machine, printer, thread for
making T-shirts.
Direct expenses are expenses that incurred on product other than direct material
cost and direct wage as a direct consequence of making product, providing service or
running department in business (management accounting and financial reporting, 2010).
For example : Cost for design, drawing or layout when they making shirts , hire of
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
equipment that help for particular job for example they can hire electric sewing or printer
to help for making their shirts.
Figure 1 : Minimum salary in Viet Nam by zone (vietnam-briefing, 2010)
Direct labour costs are the costs that used to make a product or service, usually
it's time taken for a job or time that taken to make a product and direct wage are wage
paid for labour expend on work on the product itself. Moreover, Vang company should
pay wage to their 25 employees follow Viet Nam standard for salary. In figure 1 that
show the minimum salary in zone 1 from 1.34 million and zone 2 is 1.19 million that they
will need to calculate properly by following the salary standard to attractive their
employees and that will make them stay longer with vang company and they can save
money and time because they don't need to training for new employees.
1.1.2 Indirect cost :
Indirect cost or overhead cost that including indirect material costs, indirect wages
costs, indirect expenses, admin overheads, S&D overheads.
Indirect materials which related to product but can't be traced in the finished
product. That the materials that not use like direct material but it's also help to finish the
product. For example : Some indirect materials that in Vang company they are sewing
machine, chemical for clean cloth or machine, scissors, glove for protect labour when
they work or some tools that help to decide products.
Indirect wages that the cost for wage but it's not related to the production that
wage also for person not join to the making product. For example : Vang company they
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
also need to pay the salary for manager, supervisor and they help operate and looking for
the business but they not work on the product line. The security and cleaner for Vang
company also not working on product activity so that Vang company also have indirect
wages for them.
Indirect expenses that not charged directly to production (management
accounting and financial reporting, 2010). Vang company also pay insurance for their
employees, manufacturing and they also pay rent for old building that they rent for the
office and factory.
Admin overheads that the expenses that related to administration and general
operations of the company (smallbusiness, 2014). For example : Vang company will pay
for office salary that is concluding salaries of secretaries, accountants and also they must
pay rent, rates, insurance, lighting, cleaning, telephone, portal, bank charges, legal
charges.
S&D overheads that including marketing materials, advertising, packaging,
salaries and commission of sales staff, rent, rate, insurance, cost of delivery products in
Vang company. They also change the quality and the packaging that the products are
individual wrapped in recycled brown paper bags
1.1.3 Fixed cost, step cost, variable cost and semi-variable cost :
Fixed cost are the cost that independent with the quality of good or service that
produced and it's not affected by increases or decrease in the volume of output
(management accounting and financial reporting, 2010). In the long term the cost in the
fixed cost will not change and also it's referred as a overhead cost. For Vang company,
fixed cost is the renting for the old building for the office and factory because they must
have the contract and in the contract maybe they will show the price for the rent and that
will not change in after they finish contract.
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Figure 2 : Fixed cost (google)
Step costs is the fixed cost when the company pay but this cost have been
increase because of the increasing of the volume of production or something it can be
decrease because of the volume of production decrease. Step cost can happen because of
the expands of the company. For example : For Vang company if they receive more t-
shirts from customers that they will make more t-shirts and they should have more
employees that will make them increase the cost or they need to rent for factory because
of the increase of the employees.
Figure 3 : Step cost (google)
Variable cost that including materials, labour, distribution cost, energy usage, etc
( businessdictionary). Variable cost will increase when the level of production increase
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
and they will decrease when it's decrease. For example : sales commission will increase
when seller they have sale more unit of t-shirts for vang company. When they need to
make more t-shirts they also pay more for the variable cost for the material that they get,
electricity bills and wages for employees for more hours working.
Figure 4 : Variable cost (google)
Semi-variable cost are the costs that contain fixed cost and variable cost
components. For example: Vang company also need to pay salary (fixed cost) and
commission (variable cost) for salesperson and it's a semi-variable cost.
Figure 5 : Semi-variable cost (google)
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
1.2 Costing method
1.2.1 Job costing
Job costing is a special requirement from customers and the order is
comparatively short duration. In this kind of costing the customers will have more power
and business must follow the requirement from customers and they must do it best. Job
costing also related to material, labour and overhead that used for the special level of job.
Job costing is a tool that help customers have what they want, what the quality or
quantity that they want. Moreover, Vang company is concentrate on making t-shirts for
company, family and group events that why they need to do well job costing when
someone order t-shirt and they need to follow that customer want to when they customize
their own t-shirt. For example: when group of student they want to make 50 t-shirts for
their class and they give idea and they want all t-shirts must be the same, job costing will
help vang company to do that they will follow the standard, requirement to do all 50 t-
shirts same with each other.
1.2.2 Bath costing
In bath costing that also including variable cost and fixed cost, it's always that the
units that customers want to produce in their requirement. It's different with job costing
because it have more requirement of units that customers want to do. In job costing they
only do 1 requirement for 1 unit but in bath costing they have more than 1 requirement
and more units. They just only calculated the cost per unit when the bath is completed. In
vang company they have lots of order from a group and also in the group they have lots
of people with different size of t-shirts. When they order size XS, S, M, L, XL that vang
company with follow and do their requirement with different requirement and it's a bath
costing.
1.2.3 Contract costing
Contract costing is a method that same with job costing but the order is long
duration and in job costing it's just short duration ordering. Customer and supplier in this
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
type of costing they making formal contract to work undertaken to customer
requirement. In this contract it also have some overhead cost for material, labour, etc
because it's take long time for making products and both party must agree in the contract
and they must show everything clearly in contract with the agreement between parties.
Moreover, vang company will need to apply contract costing for their business, they need
to find some party with long term contract that can help them have more profit if they
become party together. Vang company can make products and give it to them every year
that have in contract and it'll help them not losing customers and to do that they need to
follow all requirement in the contract between them with high standard of quality.
1.2.4 Process costing
Process costing is a continuous production run which cost is charged before unit
produced during the period. In this kind of costing that will help production activity keep
all working they will keep to work 24/7 and they cannot stop that because it will make
damage for production and loss for business. For example : that kind of costing will need
for vang company because when they have lots of order they need to do 24/7 productivity
and they need to have more employees to divide working hour that the employees cannot
fell tired and they can work well to make good products.
1.2.5 Service costing
Service costing is the accounting cost that is related to service and function. This
kind of method is more concentrate on service not in production and that also help them
to improve about internal and it also help for the benefit of the business. This method will
show per unit of cost for operation or service by grouped under fixed cost and variable
cost. Moreover, vang company should apply service costing by provide canteen, security,
maintenance department. Canteen will provide food, water and it is also the place for help
their employees relax after working, it'll save more time if they have canteen inside and
employees will not take lots of time to go outside to eat. Security is an important
department that they can keep safety for business or look after for the stock that no one
can't take it.
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
1.3 Costs using appropriate techniques
Task 1
Producing Department Service Departments S P X Y Z $60,000 $90,000 $20,000 $20,000 $10,000
Service provided
Departments X Y Z
Producing – S - 30% 40%
Producing – P 50% 40% 30%
Service – X - 20% -
Service – Y 20% - -
Service – Z 30% 10% -
Marketing - - 20%
General Office - - 10%
100% 100% 100%
Figure 6 : Interdependence of the departments (case study)
From figure 6 that the service department can be calculated by the formula :
X = 20,000 + 20%Y ( or 20,000 + 0.2Y)
Y = 20,000 + 20%X ( or 20,000 + 0.2X)
Z = 10,000 + 30%X + 10%Y ( or 10,000 + 0.3X + 0.1Y)
Replace Y = 20,000 + 20%X into X = 20,000 + 20%Y that will have formula:
X = 20,000 + 0.2(20,000 + 0.2X)
=> X = 20,000 + 0.04X + 4,000
=> 0.96X = 24,000
=> X = 25,000
Next replace X = 25,000 into Y = 20,000 + 20%X will have formula :
Y = 20,000 + 0.2 x 25,000
=> Y = 20,000 + 5,000 = 25,000
Then replace X = 25,000 and Y = 25,000 into Z = 20,000 + 30%X + 10%Y will have
formula :
Z = 10,000 + 0.3 x 25,000 + 0.1 x 25,000
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
=> Z = 10,000 + 7,500 + 2,500 = 20,000
Finally the result for service department have show that X= 25,000 , Y = 25,000
and Z = 20,00 that we will put that result into figure 6.
Service providedDepartments X Y Z Production
departmentTotal
Producing – S
- - 30% $ 7,500
40% $ 8,000
$ 60,000
$ 75,500
Producing – P
50% $ 12,500
40% $ 10,000
30% $ 6,000
$ 90,000
$ 118,500
Service – X - - 20% $ 5,000
- - $ 5,000
Service – Y 20% $ 5,000
- - - - $ 5,000
Service – Z 30% $ 7,500
10% $ 2,500
- - $ 10,000
Marketing - - - - 20% $ 4,000
$ 4,000
General Office
- - - - 10% $ 2,000
$ 2,000
100% $ 25,000
100% $ 25,000
100% $ 20,000
$ 220,000
Figure 7 : Costs using appropriate techniques
Task 2
$Direct Materials 120,000
Direct Wages 100,000
Factory Overhead 60,000
Administrative overhead 56,000
Selling and distribution overhead 42,000
Figure 8 : Budget figures 2009 (case study)
Factory overhead rate= factory overhead / direct wages = 60,000 / 100,000 = 60%
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Administration overhead rate = administrative overhead + selling and distribution
overhead / ( direct materials + direct wages + factory overhead) = 98,000 / 280,000 =
35%
In case study that in 2010 :
Direct materials $60,000
Direct wages $40,000
Factory overhead = factory overhead rate x direct wages = 60% x 40,000 = 24,000
Total = direct materials + direct wages + factory overhead = 60,000 + 40,000 + 24,000 =
124,000
Total administration overhead = (administration overhead rate x total factory
overhead ) + total factory overhead = (35% x 124,000) + 124,000 = 167,400
In the case study have mention that 20% of profit so the profit = 20% x 124,000 = 24,800
Total = 24,800 + 167,400 = 192,200
Selling price for 2010 = 167,400 + ( 20% x 167,400) = 200,880
Direct materials $ 60,000
Direct wages $ 40,000
Total factory cost $ 124,000
Total administration cost $ 167,400
Selling price $ 200,880 Figure 9 : Selling price in 2010(case study)
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
1.4 +2.1 Collect, analyse and present data based on the information
using appropriate techniques
In the figure below Cost of goods sold (COGS) = variable costs + fixed costs
2006 Percentage 2007 Percentage 2008 PercentageSales $150,000 100% $285,000 100% $400,000 100%
Variable factory costs $70,000 47% $95,000 33% $120,000 30%
Fixed factory costs $20,000 13% $25,000 9% $30,000 8%COGS $90,000 60% $120,000 42% $150,000 38%
Gross profit $60,000 40% $165,000 58% $250,000 63%Administrative and selling expenses $25,000 17% $70,000 25% $130,000 33%Profit $35,000 23% $95,000 33% $120,000 30%
Figure 10 : profit 2006-2008(case study)
Figure 11 : Sales 2006-2008(case study)
In figure 11 that the sales have increasing from $150,000 in 2006 to $400,000 in
2008. In the graph that show vang have good signal and they had good improvement for
products and service that why they have more customers and sales. Vang company will
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
have more investment because their sale increase faster year by year that the investment
will attractive on it because they want to have more profit.
Figure 12 : Sales vs COGS 2006-2008(case study)
Sales that increasing that also make COGS increasing from $90,000 in 2006 to
$150,000 in 2008 that because more sale they also need to design for the cost of goods
sold to make more profit for their company. For vang company they must concentrate on
cost of sales that to reduce stock prices and company sales should growth faster than cost
of sales.
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Figure 13 : Sales vs gross profit 2006-2008(case study)
Sales and gross profit have fast increasing from 2006 to 2008. The formula for
gross profit is equal to sales - COGS and that show the profit that they get from sales if
sales is increase that also gross profit will increasing.
Figure 14 : Sales vs administrative and selling expenses 2006-2008(case study)
Administrative and selling expenses that increase slowly from 17% in 2006, 25%
in 2007 to 33% in 2008. Vang company need to reduce administrative and selling
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
expenses by reduce cost for advertising, marketing, expenses that not too necessary that
to have more sales and profit.
Figure 15 : Sales vs profit 2006-2008(case study)
Sales and net profit also increasing but the percentage of increasing for net profit
is increase in 2006 and 2007 from 23% to 33% but decrease in 2007 and 2008 from 33%
to 30%. The government increased tax and interest rate in 2008 that made vang company
had lower net profit that why vang company should reduce cost of expenses, labours ,
materials.
Particulars 2008 ($) (%) Daily expenses Weekly ExpensesSales $ 400,000 100% $ 1,095.89 $ 7,671.23
Variable production cost $ (120,000) 30% $ (328.77) $ (2,301.37)
Material cost $ (60,000) 50% $ (164.38) $ (1,150.68)
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Direct material (cloth) $ (42,000) 70% $ (115.07) $ (805.48)
Indirect material cost $ (18,000) 30% $ (49.32) $ (345.21)
Labour cost $ (48,000) 40% $ (131.51) $ (920.55)
Direct labour cost $ (28,800) 60% $ (78.90) $ (552.33)
Indirect labour cost (Supervisors) $ (19,200) 40% $ (52.60) $ (368.22)
Phone bill $ (2,400) 2% $ (6.58) $ (46.03)
Internet bill $ (2,400) 2% $ (6.58) $ (46.03)
Electrictity bill $ (2,400) 2% $ (6.58) $ (46.03)
Water bill $ (2,400) 2% $ (6.58) $ (46.03)
Delivery cost $ (2,400) 2% $ (6.58) $ (46.03)
Fixed prod cost $ (30,000) 8% $ (82.19) $ (575.34)
Maintenance cost of tools, jigs, fixtures $ (6,000) 20% $ (16.44) $ (115.07)
Fixed Research and Development $ (4,500) 15% $ (12.33) $ (86.30)
Rental of buisiness premises (500$ per Sq ft) $ (17,700) 59% $ (48.49) $ (339.45)
Rent insurance $ (1,800) 6% $ (4.93) $ (34.52)
Total COGS $ (150,000) 38% $ (410.96) $ (2,876.71)
Gross profit $ 250,000 63% $ 684.93 $ 4,794.52
Admin, Selling & Other Expenses $ (130,000) 33% $ (356.16) $ (2,493.15)
Advertising $ (13,000) 11% $ (35.62) $ (249.32)
Legal charges & Audit fees $ (6,500) 5% $ (17.81) $ (124.66)
Freight and Insurance charges $ (10,400) 9% $ (28.49) $ (199.45)Lighting, cleaning & heating of General
Office$ (7,800) 7% $ (21.37) $ (149.59)
Sales commission $ (39,000) 30% $ (106.85) $ (747.95)
Sales promotion $ (26,000) 20% $ (71.23) $ (498.63)
Depreciation expenses $ (13,000) 10% $ (35.62) $ (249.32)
Printing and stationeries $ (11,700) 9% $ (32.05) $ (224.38)
Net profit $ 120,000 30% $ 328.77 $ 2,301.37
Figure 16 : Routine cost for 2008(case study)
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Figure 17 : Weekly variable costs(case study)
In figure 17 that vang company spent 50% that $1,150 on material cost and $920
that 40% for labour cost that they spent too much for direct costs. Vang company have to
reduce material and labour cost by find good suppliers with cheap price of materials and
hire enough employees to work with the salary normal or they can cut down some
employees if it is not necessary. They must keep productivity working 24/7 with perfect
number of employees that they can't waste time and cost for making products that they
can have more profit.
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Figure 18 : Weekly fixed costs(case study)
In figure 18, vang company spent $30,000 for 2008 fixed cost and $575 for
weekly expenses. The most expense that they need to pay is rental that nearly $400 per
week and they also spent $115 for maintenance of tools, jigs and fixtures. Vang company
should reduce cost of rental by find some contract with parties that they have good
relationship that can make it cheaper. They also need to reduce maintenance of tools, jigs
and fixtures ; reduce research and development cost is also important and to do that they
need to have good plan and process that they must know how to have good research and
that can save money and time. Moreover, they need to hire good manager with lots of
knowledge and experiences that to help them give good research and good idea to
development for their business and that will give them lots of profit without spend lots of
costs for lots of people to do development instead of one.
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
Figure 19 : Weekly admin, selling & other expenses(case study)
Vang company spent $130,000 in 2008 and $2,493 on weekly expenses for
admin, selling and other expenses. Vang company need to sale more t-shirts to family,
company and group event that why they pay lots for 30% sale commission, 20% sale
promotion and 11% for advertising. They do that to have good relationship with
wholesaler, detailer that they can stay longer with vang company and they will have more
motivation because vang company give them have commission that they can earn more
profit. When vang company is growing enough they also need to reduce costs for
advertising that they just advertise some that necessary to their business to save more
cost. Vang company also find ways to reduce legal charges & audit fee ; freight and
insurance charges ; lighting, cleaning and heating of general office; depreciation
expenses; printing and stationeries to have more profit.
2.2 Performance indicators to identify potential improvement
Key performance indicators (KPI) that is a tool to help the organisation define and
measure that to they are achieve the organisation goals. KPI also can help to analysis of
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L/601/0950 Name : Do Duy Phuoc (Ben 2)
variances and that help to monitoring resources, controlling and planning for the future
(management accounting and financial reporting, 2010). Performance indicators are
establish to measure efficiency, effectiveness and productivity. Efficiency is all about the
quality, performance of the productivity that show they are doing well effectiveness is
that business is meeting their target and objectives. Moreover, vang company should have
good management that manager can effect to their employees to work well with perfect
quality and that will help them achieve their goals by having good efficiency and
effectiveness. Performance indicators measure for the cost centres, revenue centres, profit
centres and investment centres.
2.2.1 Cost centres
Productivity is that related to the dividing between output over input in the
business activity. Productivity can so units produced per employee, hour, material
(management accounting and financial reporting, 2010). Productivity can bring good
income to the business that will help them have more revenue and profit, also
productivity can help business improve and expand. High level of activity that they have
high level of profit. For example: vang company needs to have good analysis, process
that to help them to have best activity.
Cost per unit is that a cost that they calculated to know for each unit by dividing
production costs and units produced. For example : In vang company to calculate cost per
unit they must follow formula that cost per unit = production costs ( variable cost + fixed
cost) / units produced.
2006 2007 2008
Production costs $ 90,000 $ 120,000 $ 150,000
Units produced 900 1150 1400
Cost per unit $ 100 $ 104 $ 107 Figure 20 : Cost per unit(case study)
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2.2.2 Revenue centres
Revenue centres are generating revenue, against price and volume targets. For
example : department, section, group are determined individual organisation by revenue
centres , they will collect income or profit from services or sale of goods. Performance
indicators for revenue centres that including customer rejects, deliveries late: deliveries
on schedule, flexibility measures, number of people served and speed of service.
Customer reject that when customers not satisfy about the products and the
business should provide some employees to check the products careful before go to the
market. Moreover, business need to make the percentage of customer reject is really low
that can show how perfect of their products and how customers satisfy. For example:
when vang company produce 10,000 t-shirts and 100 t-shirts is from customers return
that show they have 0.01% of customer reject and it's a good signal for their business
because the product that they produce is perfect.
Deliveries late that can help for customers and suppliers. Deliveries late also
show that the time that customers want to delivery and it's show how the professional of
the business that will help them have more benefit by having customer's satisfaction.
Moreover, they can create relationship with supplier to have cheaper cost and faster time
of delivery materials by apply this ratio. Furthermore, vang company should apply this
ratio to have good agreement with customers and suppliers to bring more benefit to their
business.
Number of people served and speed of service is very important for the business
that usually at the shop that can show the speed of service and how good they are at the
point of sale. Moreover, this ratio will help vang company concentrate on the quality of t-
shirts and quantity that they will serve to the customers, also they need to make sure the
speed of service is fast that can make customer satisfy.
Customer satisfaction questionnaires that also same with survey that customers
can create some question by using software. Customer satisfaction questionnaires can
show that customers can happy, satisfy or not. For vang company they need to apply this
ratio that they can know clearly about customer's satisfaction that can help them to
improve how to make products or service better.
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2.2.3 Profit centres
Profit centres are generating about profit or loss they will calculate it separate
with other centre and that will show gross profit and net profit by dividing for sales. The
profit centre manager can see that company is going on the right way or not and that will
help them know how to improve their business.
Gross profit margin = (gross profit / sales) x 100%
Net profit margin = (net profit / sales) x100%
In the figure below that show sale, gross profit margin and net profit margin in
2006, 2007 and 2008. The gross profit ratio is increase from 40% in 2006 to 63% in 2008
this is a good signal for vang company that show they have more profit and their business
is going better and better. For net profit margin it's increase from 23% in 2006 to 33% in
2007 and it's decrease to 33% in 2008. The decrease in 2008 maybe because of the high
interest rate, tax, COGS. In 2008, gross profit is high but when the government increase
tax and interest rate that also effect directly to net profit. Moreover, Cost of goods sold
that including labour, material, expense that vang company should reduce some labour,
material and expense costs that to help to increase net profit. Profit centre will help them
how to manage and improve the business to have more revenue, profit.
2006 2007 2008Sales $ 150,000 $ 285,000 $ 400,000 Gross profit $ 60,000 $ 165,000 $ 250,000 Net profit $ 35,000 $ 95,000 $ 120,000 Gross profit margin 40% 58% 63%Net profit margin 23% 33% 30%
Figure 21 : Gross profit and net profit for 2006-2008(case study)
2.2.4 Investment centres
Investment centres are the department that help company to control and plan for
capital that show where and how they investment money to get revenue and profit for
company. Return on investment (ROI) is also very important for investment centre that
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can show that they have profit and they will know that they will get back the investment
in how many days. ROI is usually calculated by (profit / capital employed) x 100% and
the profit in this formula is usually that before tax and interest (management accounting
and financial reporting, 2010). ROI that can help vang company to know exactly how
they will spend to get profit and how to expand their company. For example: in the figure
below that show vang company can get back ROI that increase from 6% in 2006 to 18%
in 2008 that can show vang company have improve their company and they have good
signal for return on investment each year.
2006 2007 2008Profit $ 60,000 $ 165,000 $ 250,000 Capital employed $ 1,000,000 $ 1,200,000 $ 1,400,000 ROI 6% 14% 18%
Figure 22 : ROI 2006-2008(case study)
2.3 Improvements to reduce costs, enhance value and quality
Cost is an important thing for business that will show that they can have profit or
not. In cost that including cost plus pricing, market pricing and target costing. Full cost
plus pricing that add all the costs that including profit, admin and selling distribution,
overhead costs, etc. Every products must have the product life cycle that the products
should introduction to the customers first for them to know what is this new product,
secondly they go to the growth stage by increasing the productivity , marketing, go to
bigger market and investment, in this stage they also need to create new products for
prepare for the recovery. Thirdly, maturity stage is the stage that the products is going
down that they need to do some recovery or change product label, quality to bring
products back to growth or the products will go to the last stage it's saturation and decline
that the products will no longer stay, they will get loss in this stage and they will go to
other products that can make business have profit. Target costing is that usually
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determined by supply and demand and that really important for business that they need to
find out the target for their products to bring profit to their business.
Vang company should have good product life cycle for their products, they need
introduce their products and their company first through marketing on the internet,
magazine, newspaper and direct selling. They need to make t-shirts that suitable for the
group of people, they can make the quality of products depend on the customers for
example t-shirts for business will be different with t-shirts for group of students about the
quality, style and price. They also need to have good business image that can attractive
their customers. Moreover, they need to have good process to plan for reduce materials
cost, labours cost and expenses cost. Vang company should reduce number of waste that
they can reduce cost for materials, hire more employees and change their work that they
can work 8 hours per day and that will help productivity working 24/7 that will make
them save more costs for labour. Moreover, vang company should have good relationship
with suppliers that can help them purchase materials with low price.
Quality is the degree of excellent of a thing, how well for the products and how
the products perform are really important for quality. For example : microphone can
transfer voice fast and loud to customers that it fitness the purpose of the customers and
that will make customers satisfy about quality of the products.
Value is a that when the quality is fitness to the customer's purpose and it can
bring profit to the business. In value that including cost value, exchange value, use value
and esteem value.
Vang company also should apply six sigma that they must achieve 99.99966% of
output is no defects. For example : when vang company make one million t-shirts that
only 3,4 t-shirts are defect that can help vang company can reduce materials, labours and
expenses cost. Vang company want to apply 6 sigma they also need to plan how to make
product better by using some tools and manager should check the quality of products to
make sure that no defect.
Vang company also need to apply total quality management ( TQM). TQM that
help business to analyse, improve quality of products and customers service. In TQM that
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including 5 principles that get it right, first time ; continuous improvement ; quality
assurance procedures ; employees and quality ; quality control and inspection.
Get it right, first time that vang company need to have everything right, correct in
the first time and to do that they need to have good process, plan, knowledge, understand
customers need. This principles of TQM will help vang company save more costs and
time.
Second principle is continuous improvement that when vang company have
mistake they need to know clearly about that mistake and they need to do it better next
time. Because, nothing is perfect and everything should have mistake but they need know
how to improve to not doing that mistake again and again.
Quality assurance procedures that cover work of sales, reaction of external
customers, effort of external suppliers and administration and distribution departments
(management accounting and financial reporting, 2010). In this principle the quality of
the products is usually depend on the quality of the materials from suppliers that why
vang company should find out best suppliers and get best materials with cheaper price.
Vang company should hire good manager for checking products before sell it to
customers. They also need to do survey and after it they need to improve through the
survey, reduce the number of customers complaints by giving best products with no
mistake to them, discount for some of the products that have little bit error.
Employees and quality is the next principle for TQM. Vang company should give
freedom to their employees to decide how to do and that can help them more create, relax
that can help them for doing good quality of products. Moreover, vang company should
make them responsible for what they are doing if the quality of products not good the
employees that making that products will responsible for that and they will not do this
mistake again.
Quality control and inspection is the last principle of TQM. The quality of
products and service must be perfect , it must be control to give best performance to the
customers by using some technique. Vang company also need to apply work in process (
WIP) that can help them divide the job for each departments to make the products better.
For expample : They have different section for making t-shirt by apply WIP that they
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will divide who will do design of the t-shirt, who will making collar, sleeve and body for
the t-shirt then they join all parts together to make finish product. WIP will help them
save time and money when making finish products.
Vang company need to follow International Organization for Standardization
( ISO) to get certificate that certificate can show that they have good quality and value
for their products and business. ISO also make vang company more efficient and
effective, low tax, join to the international trade that can help them have more export and
cheaper for import. Moreover, their products can be satisfied by the international standard
that they will have more customers because they have best quality certificate by achieve
ISO.
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REFERENCES
BPP, learning media, 2010. Finance: Management accounting and financial reporting. 1nd ed. UK
Businessdictionary (no date) direct cost [online] available from
<http://www.businessdictionary.com/definition/direct-cost.html>
Businessdictionary (no date) variable cost [online] available from
< http://www.businessdictionary.com/definition/variable-cost.html>
Smallbusiness (no date) overhead expense [online] available from
< http://smallbusiness.chron.com/overhead-expense-33127.html>
Fig. 1. vietnam briefing. (2009) minimum wage levels to rise for foreign companies in
2010 [online] avaiable from
< http://www.vietnam-briefing.com/news/minimum-wage-levels-rise-foreign-
companies-2010.html/> [16 november 2009]
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