Accounting Assignment1

WORD COUNTNumber of Pages:

Number of Words: 3000

Word count is exclusive of the followings:

Cover Page

Content Page

Citation and Referencing

Conclusion

Gantt Chant

Tables

Graphs

Titles/Headings

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TABLE OF CONTENTS

1.0: INTRODUCTION.......................................................................................................4

_ IMPROVEMENT TO REDUCE COSTS, ENCHANCE VALUE AND QUALITY.....4

1.1: DIFFERENT TYPES OF COST INCURRED IN THE COMPANY..........................5

1.1.1Cost Classification:..............................................................................................5

1.1.1a Direct Cost:.......................................................................................................5

1.1.1b Indirect Costs:...................................................................................................6

1.1.2Type Of Cost:......................................................................................................7

1.1.2a Fixed Cost:........................................................................................................7

1.1.2b Variable Cost:...................................................................................................7

1.1.2c Semi Variable Cost:..........................................................................................8

1.2: THE NEED OF AND OPERATION COSTING MEDTHODS USED.................9

1.2.1Job Costing..........................................................................................................9

1.2.2 Bath Costing.....................................................................................................10

1.2.3 Contract Costing...............................................................................................10

1.2.4 Operation Costing.............................................................................................10

1.2.5 Service Costing:................................................................................................10

Stock Valuation:........................................................................................................11

FIFO (First In First Out):...........................................................................................11

LIFO (Last In First Out):...........................................................................................11

Cumulative Weighted Average Pricing:....................................................................12

1.3: CACULATE COSTS USING APPROPRIATE TECHNIQUES:.............................13

1.4: ANALYSE AND PRESENT DATA BASED ON THE INFORMATION GIVEN

...........................................................................................................................................15

2.1 VANG COMPANY WEEKLY REPORT:.................................................................18

2.2: PERFORMANCE INDICATOR INDENTIFY POTENTIAL IMPROVEMENTS:

...........................................................................................................................................20

2.2.1 Performance measure for the Cost centres:......................................................20

2.2.2: Performance measures for the revenue centers:..............................................21

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2.2.3 Performance measure for profit center:............................................................22

2.3: IMPROVEMENT TO REDUCE COSTS, ENCHANCE VALUE AND

QUALITY:.........................................................................................................................26

3.0: CONCLUSION.........................................................................................................28

4.0: REFERENCES........................................................................................................29

List of Figures & Tables

FIG1: FIXED COSTS (VANDERBILT 2001).........................................................................................................8

FIG2: VARIABLE COSTS (VANDERBILT 2001)..................................................................................................9

FIG3: SEMI-VARIABLE COSTS.........................................................................................................................10

FIG4: INTERDEPENDENCE OF VANG COMPANY DEPARTMENTS (CASE STUDY 2014).....................................14

FIG6: VANG COMPANY CONDENSED INCOME STATEMENT (2006-2008).......................................................16

FIG7: VANG COMPANY CONDENSED INCOME RATE STATEMENT (2006-2008).............................................17

FIG8: SALES VS. TOTAL COSTS 2006-2008....................................................................................................17

FIG9: SALES VS. GROSS PROFIT......................................................................................................................18

FIG10: SALES VS. ADMINISTRATIVE AND SELLING EXPENSES.......................................................................18

FIG11: SALES VS. NET INCOME.......................................................................................................................19

FIG12: WEEKLY COST REPORT.......................................................................................................................20

FIG13 VARIABLE COST IN 2006......................................................................................................................20

FIG14: NIKE GLOBAL CONTRACT FACTORY WORKERS BY REGION (NIKE,INC 2012).................................23

Fig15: Vang Company Investment Center.....................................................................................................26

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1.0: INTRODUCTION

This report will show how Vang Company will calculate their financial, controlling the

cost and develop the business. It will be discussed and explained about:

_ DIFFERENT TYPES OF COST INCURRED IN THE COMPANY

_ THE NEED OF AND OPERATION COSTING MEDTHODS USED

_CACULATE COSTS USING APPROPRIATE TECHNIQUES

_ ANALYSE AND PRESENT DATA BASED ON THE INFORMATION GIVEN

_ VANG COMPANY WEEKLY REPORT

_ PERFORMANCE INDICATOR INDENTIFY POTENTIAL IMPROVEMENTS

_ IMPROVEMENT TO REDUCE COSTS, ENCHANCE VALUE AND QUALITY

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1.1: DIFFERENT TYPES OF COST INCURRED IN THE COMPANY

Each company want to start their business or have highest benefit they must clearly

know about their financial and accounting to have right investment, run and develop the

business. Accounting is also definite the cost and benefit and help the directors or

managers balance it to achieve the goals and earn more money. Knowing about costs

incurred or revenues earned enables management to estimate the profitability of a

product with the cost to run the business in organisation such as departments, services,

and manufacturer. Accounting also helps the managers run the business in right way,

set the selling price and balance the costs of sale to have highest benefits. Furthermore,

It puts a value to stocks of goods, control quantities of product for preparing a balance

sheet of the company’s assets and liabilities (Learning Media 2010)

Cost accounting is a management information system, which analyses past, present and

future data to provide the basis for managerial action. It provides the information about

elements of cost including: Material, labour, expenses/ overheads in direct and indirect

cost. It is also divided in Fixed Cost, Variable Cost and Semi-variable Cost these will be

provided in next paragraphs.

1.1.1Cost Classification:

Are the cost incurred in purchase the raw material, labour and equipment that

relate to producing finished products or the cost of administration, marketing and selling

product within a company. In other way, It is a cost that manager or director pay to run

their business and it is classified as direct cost and indirect cost.

1.1.1a Direct Cost:

Are the cost that relate directly with the production of goods and services in a

company. These are the basis cost that the manager can measure to pay before they

decide to run a process. It includes direct materials costs; direct labour costs and direct

expenses.

Direct Materials Costs:

Any manufacture company want to produce product they also need to have the

raw materials, the direct materials costs include the direct payment of manufacture to

have the first basis to produce their product

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For example, with Vang Company the direct materials costs are silk, buttonhole or clothe

dyes. These things are linked and influenced directly with the finished goods of Vang

Company; which manager should buy to make T-shirts.

Direct Labour Costs:

Are included the cost that the manufacture must pay to their employee, manager

and the person or relation elements influence directly during producing the goods. The

direct labour costs in Vang Company are employee and manager ‘ fixed salaries, quality

checking fee and so on.

Other Direct expenses Costs:

It involves directly in producing product such as electronic fee to run and produce

a good or the payment of marketing like advertisements, selling and retail store to sell

their product.

1.1.1b Indirect Costs:

Beside the direct costs, indirect costs or overheads are the cost, which will be

incurred in the course of making a product, or providing service (Learning Media 2010)

that director or the manufacture cannot measure before producing the final product.

These costs also include Materials, Labour and Other Expenses costs.

Indirect Materials Costs:

These cost is not relate directly with the producing goods process but it can be

said that is necessary equipment to have finished products in Vang Company like

machines, the safety equipment for their employee, the light and so on.

Indirect Labour Costs:

Are the costs will be appeared during the time employee producing a product or

the cost of administration such as producing a T-shirt, Vang Company must pay the cost

for wrong doing a T-shirt, the wages of inspector, the watch men and so on.

Other Indirect Expenses Costs:

Are the expenses are not directly linked with the production of a good. These costs are

charged to the final product (Uk Essays 2014). In other way, these are the cost of rent a

department, the insurance of a factory or the cost for doing extra a product such as fuel

power, electronic or telephone expenses in Vang Company.

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1.1.2Type Of Cost:

The cost is payment of organization to run their processes, it fluent on the number of

finished product. The manager or director will relate to these costs to take a decision-

making. The cost can also be classified on how frequent they react to production

(UKessay 2014)

1.1.2a Fixed Cost:

Fixed cost is identified as the unaffected cost during producing product in the

period of time. The payment is calculated by multiple the quantities of product and the

cost per unit. A line in the graph below shows the fixed cost in a company:

Fig1: Fixed Costs (Vanderbilt 2001)

In Vang Company, fixed costs are included rent cost or wages of permanent

workers, these will be not changed in during producing time. These costs will be

identified to manage and control the payment within the company to keep the business

running as well; if not they can easily make their business run down and cannot pay the

cost for producing goods.

1.1.2b Variable Cost:

Compare with Fixed Cost, Variable Cost are the changing cost maybe occurred during

producing product in the short run; which varies with the level of activity.

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Fig2: Variable Costs (Vanderbilt 2001)

In manufacturing industry like T-shirt, Vang Company also cannot involve the Variable

Costs, these costs will occur during producing any T-shirt that the managers or directors

could not see it before. Sometimes they are costs plus for employee to produce a mount

of extra T-shirt, the labour costs or raw materials. Vang Company must count or

calculate these costs to prepare or make right decisions to develop their business.

1.1.2c Semi Variable Cost:

Semi Variable Cost is composed of a mixture of fixed and variable elements.

These costs will be affected by changes in the level of activity. For example, the fixed

cost will increase when Vang Company want to produce more 50 T-shirt per employee

they must pay more money on rent cost, electricity cost and so on (Learning Media

2010)

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Fig3: Semi-Variable Costs

As the manager can see in the graph, it shows about the semi-variable cost in business.

Actually, Vang Company is a manufacture and they will increase or develop their

business and they also need to produce more T-shirt to supply the customers.

Understanding these costs, the manager can balance the price of good and the cost to

produce them then make Vang Company will also have the best benefits. It is the main

purpose why Vang Company should do calculate these costs.

1.2: THE NEED OF AND OPERATION COSTING MEDTHODS USED

Through the classification and types of cost the company will use the costing methods

for pricing or stock valuation. Furthermore, controlling the business is very also important

in any company. Costing methods will provide to managers or directors a full view about

the financial then they can take or make the right decision for success of the

organization. If the company takes wrong costing methods, actually it can make the

business decline so they must improve their business or drawback the organization.

Moreover, it takes the company more times to adapt and re-develop their company

again. It is the main reasons why Vang Company must choose and use right costing

methods; which will be discussed in next paragraphs.

1.2.1Job Costing

This method is applied to calculate the cost of orders or requests of customers or

partners of the company which are carried out separately for each product. Moreover,

these costs are based on the specific technical characteristics of the customer or the

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goods made separately in a short time. Job Costing is commonly used in the

construction and manufacturing industry, because it is based on orders, customers'

requirements to fulfill the needs of each individual and group. For Wine Company, Job

costings include cost of T-shirt order, shirt printing costs for security companies and

banks.

1.2.2 Bath Costing

Bath Costing includes all the fixed cost and variable cost that may arise in the production

of goods. The price of a product is calculated by dividing the total cost per unit. Costing

Bath in Wine Company is understood as the cost of production of a certain amount of

good in a months or a year. For example, each month Wine Company produces 100,000

T-shirt to offer and sell at supermarkets, department stores or customers and this cost is

calculated for the entire shipments divided by the number of T-shirts. By doing so,

managers can balance the cost to achieve the greatest profits.

1.2.3 Contract Costing

Contract Costing and Job Costing are similar but the difference is Contract Costing is

long-term costs of orders or requirements of customers, the manufacturers and

customers are together bounded by the terms of the contract to meet the needs of two

parties. Wine Company can apply this method to calculate the cost and different terms of

contract to extend the contracts with stores, supermarkets and shopping centers for

many years.

1.2.4 Operation Costing

Operation Costing is also similar to Process Costing, in this method, price of products

and costs will be calculated based on the need to implement processes to produce one

finished product. Wine Company uses this calculation method in weaving clothes, dying

or machinery stage.

1.2.5 Service Costing:

This method is used to calculate the rates and costs of mining company focused and

service providers to meet the needs of our customers as cafeteria Wine Company,

where workers, employees still use to buy water and food to meet their operational

needs.

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In addition, to the price of the delivered goods, we can also apply the following methods:

Stock Valuation:

According to this method, the actual value of the goods, materials, manufactured

products of any shipment will be based on the number of units of inventory and actual

import prices of goods or materials. This method is applied to the materials and goods

with high value, few species, good management and protection conditions, identified

stable.

Advantage: identify the value of goods, materials and export products quickly.

Disadvantage: businesses have to track and closely manage each export

shipment. This method is not suitable for the companies using a variety of materials,

products and goods because it would be difficult to count and manage.

FIFO (First In First Out):

This method assumes that the amount of material, goods, imported products, which are

first imported, will be before the storing products. In other words, according to this

method, the unit price of the first shipment is exported before the next entries until the

quantity is sufficient.

Advantage: Determine the value of materials and goods quickly. Moreover, this

method can help the manager balance and adjust the price of each product and material

at the present time.

Disadvantage: the manager has to monitor and closely manage the cost of each

shipment, it is not suitable for the enterprises using a variety of materials, products,

goods and many times of import because it will cause difficulties in monitoring, and

managing the cost of each shipment.

LIFO (Last In First Out):

This method assumes the amount of materials, goods and products which are last

imported will be used before the storing products. In other words, according to this

method, the unit price of the last shipment is exported before the first entries until the

quantity is sufficient. Accordingly, the actual value of inventory is determined by the

amount of inventory and the unit price of the new entries at time of manufacture.


Advantage: Determine the price of goods and products in the market at present.

Manager can continue to calculate the current price and make the right decision

because input prices of the products will be included in the price of the current time.

Disadvantage: This method can interfere with the operation because the orders

are sometimes too many and the products are not enough to meet the needs of

consumers. Business may have trouble in setting prices for existing products to balance

the price and sales. Moreover, making changes and decisions will be more difficult

because of price fluctuations can affect the products.

Cumulative Weighted Average Pricing:

Under this method, the actual cost of each type of material, goods, products is based on

the average price of each type of material, product inventory at the beginning and the

value of each type during the period. In other words, the actual cost of materials, goods,

products is based on the amount of inventory in the period and the average actual unit

price.

Advantage: Managers can calculate based on the average calculation methods

and data to make decisions easily and balance the price of the product. This method is

more efficient than FIFO and LIFO because there is no need to calculate costs of each

period and shipments.

Disadvantage: Prices of products are sometimes not consistent with consuming

demand and easy to be affected by inflation.


1.3: CACULATE COSTS USING APPROPRIATE TECHNIQUES:

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%

Fig4: Interdependence of Vang Company departments (Case study 2014)

Apply the case study, it can be easily said that the service of department X has 20

percent of the department Y so the cost of department allocation of X = 20%Y + 20.000.

We can also calculate Y and Z by Y = 20%X + 20.000 and Z = 30%X + 10%Y + 10.000.

Calculating:

X = 20%Y + 20.000 (1)

Y = 20%X + 20.000 (2)

Z = 30%X + 10%Y + 10.000 (3)

From (1) and (2) we replace fomula (2) into (1) we can have result of X is:

X = 20.000 + 20%(20.000 + 20%X)

X = 20.000 + 4.000 + 0.04X

X – 0.04X = 20.000 + 4.000

24.000 = 0.96X

X = 24.000 / 0.96 = 25.000

Replacing X = 25.000 into Y we will have the result Y = 20.000 + 20%*25.000 = 25.000

Replacing X and Y into (3) we have Z = 10.000 + 30%*25.000 + 10%*25.000 = 20.000

So the cost of X = 25.000, Y = 25.000 and Z = 20.000

The figure will be shown in next table.


DepartmentsX Y Z Overhead before

allocationTotal Cost

Producing - S - 30% $7.500 40% $8.000 $60.000 $75.000Producing -

P 50% $12.500 40% $10.000 30% $6.000 $90.000 $118.500Service - X - 20% $5.000 - $5.000Service - Y 20% $5.000 - - $5.000Service - Z 30% $7.500 10% $2.500 - $10.000Marketing - - 20% $4.000 $4.000General Office - - 10% $2.000 $2.000

100% $25.000 100% 25.000 100% $20.000 $150.000 $220.000Fig5: service department cost allocations (Case Stuty 2014)

Task 2:

Direct Materials 120.000Direct Wages 100.000Factory Overhead 60.000Administrative Overhead 56.000Selling and Distribution Overhead 42.000

The Factory Overhead rate = Factory overhead / direct wages = 60.000 / 100.000 = 60%

Administrative, selling and distribution overhead is calculated

= (Administrative overhead + selling and distribution overhead) / (direct materials + direct

wages + factory overhead)

=> = (56.000 + 42.000) / (120.000 + 100.000 + 60.000) = 98.000 / 280.000 = 35%

Calculate selling price in 2010:

Fatory overhead = factory overheads rate * direct labour = 60%*40.000 = 24.000

Total Factory cost = 60.000 + 40.000 + 24.000 = 124.000

Administration, selling and distribution overhead = 35% of total factory cost

= 35%*124.000 = 43.400

Total Cost = 43.400 + 124.000 = 167.400

Profit cost is 20% total factory cost and 20% total cost

Profit 20% total factory = 20%*124.000 = 24.000

Total Cost = 24.800 + 167.400 = 192.200


Profit from 20% total cost = 20%*167.400 = 33.480

Total Cost = 33.480 + 167.400 = 200.880

After the calculating we can see that the total cost including expected profit is

$192.200 and $200.880

1.4: ANALYSE AND PRESENT DATA BASED ON THE INFORMATION GIVEN

Accounting relates to the development of a company, if the manager or directors

do not have right calculation it can influence in the benefit, making the decisions and

lose the business.

2006 2007 2008$ $ $

Sales 150.000 285.000 400.000Variable factory costs -70.000 -95.000 -120.000Fixed factory costs -20.000 -25.000 -30.000

Gross profit 60.000 165.000 250.000Administrative and selling expenses -25.000 -70.000 -130.000

Net income 35.000 95.000 120.000Fig6: Vang Company Condensed Income Statement (2006-2008)

To analyse and have right view to develop business in future, Mr.Ha Long will

know about these figures below; which will be calculated and the cost may include the

following:

The calculation in three years is the same. Mr. Ha Long can see the rates in 2006 as an

example.

The first calculation is the total cost

The total cost =variable factory costs + fixed factory costs = 70.000 + 20.000 = 90.000

Total cost rate =Variable factory costs / total sales= 90.000 / 150.000 = 0.6 = 60%

Gross profit rate = Gross profit / total sales = 60.000 / 150.000 = 0.4 = 40%

Administrative and selling expenses rate = Administrative and selling expenses /

total sales = 25.000 / 150.000 = 0.17 = 17%

Net profit rate = net profit / total sales = 35.000 / 150.000 = 0.23 = 23%

After calculating the percent or rate in each cost will be shown in the table below:

2006 2007 2008


$ $ $ Sales 150.000 100% 285.000 100% 400.000 100%

Variable factory costs -70.000 -95.000 -120.000 Fixed factory costs -20.000 -25.000 -30.000

Total costs -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 20% -130.000 33%Net income 35.000 23% 95.000 33% 120.000 30%

Fig7: Vang Company Condensed Income rate Statement (2006-2008)

To analyse and control the data easier, manager can review in some graphs below to

make the right decisions in future and see how the business was developed.

Fig8: Sales vs. Total Costs 2006-2008


Fig9: Sales vs. Gross Profit

.

Fig10: Sales vs. Administrative and Selling Expenses


Fig11: Sales vs. Net income

These graphs show how Vang Company runs their business. Mr. Ha Long can easily

analyse that the business was developing and increasing the revenue through Gross

Profit and Net Income. Furthermore, as we can see in the total cost and Sales, the cost

reduced from 60% to 38%. It means Vang Company can save the cost but also develop

it to have more benefits for company.

2.1 VANG COMPANY WEEKLY REPORT:

In this report, Vang Company can see the detail about the cost and their revenue then

control or manage the business to approach the goals in future and develop their

business also.


Sl. No. Particulars 2008 ($) (%) Weekly Expenses1 Sales 150000 100% 2 Variable prod cost -70000

2,1 Material cost -35000 -671,23287672.1.1 Direct material (cloth) -24500 -469,86301372.1.2 Indirect material cost -10500 -201,3698632,2 Labour cost -21000 -402,739726

2.2.1 Direct labour cost -16800 -322,19178082.2.2 Indirect labour cost (Supervisors) -4200 -80,547945212,3 Telephone charges -7000 -134,24657532,4 Electricity bill -7000 -134,24657533 Fixed prod cost -30000 -575,3424658

3,1 Rental of buisiness premises (1000$ per Sq ft) 03,2 Maintenance cost of tools, jigs, fixtures 04 Total COGS -90000 60% -1726,0273975 Gross profit 60000 1150,6849326 Admin, Selling & Other Expenses -25000 17% -479,4520548

6,1 Sales commission -2500 -47,945205487 Net profit 35000 23% 671,2328767

Fig12: Weekly Cost Report

The cost will be shown in the graph below:

Fig13 Variable cost in 2006

From the graph, Vang Company can analyse and take the decision to minimize the costs

and maximize the profit for their business.


2.2: PERFORMANCE INDICATOR INDENTIFY POTENTIAL IMPROVEMENTS:

Although the manager had a plan to do sometimes, in the real business they have

to be influenced by cost variances. These are the costs that manager cannot saw and

guested before the planning a process. Without monitoring the use of resources or

controlling the company to make decisions for the future, a business can be harmful and

easy to go down because the variances. Budget should be prepared for each responsibility

centre to keep the business continuous.

Nowadays, the competition and economic are changing day by day, if company or

organisation want to survival and success they must specifies clearly about the

productivity, efficiency and the effectiveness. This is the way for any organisation and

Vang company also if they want to develop the business. First, they must improve their

productivity from the sum of effectiveness and efficiency or by the way of increasing the

effectiveness and efficiency productivity also increase.

2.2.1 Performance measure for the Cost centres:

The productivity can be analysed by calculating the output / input, the cost per

unit or the indices. A successful process can be identified by the speed of how a product

will be produced. If the output increases, the productivities will also increase. For

example, the labour productivity in Vang Company are the quantities of product that an

employee or a store of Vang Company will produce and the output or the income will be

more than amount of achieve goals. As we can see in the graphs before, Mr.Ha Long can

see easily that the rate of Sales vs. Total Costs decreased. It means that the Vang

Company saved the cost from 0.6 $ per unit to 0.38$ per unit and the quantities of unit

produced also increased from 150.000 to 400.000

As we can see the indices also increased from 2006-2008, as Total Costs were

increase more than 67% by calculating (Total Costs in 2006 / Total Costs in 2008) x

100% it means that the payment will also increase. In this case, the manager should

expand their business by producing more units to get the benefits. Besides, the quality,

resources or the completion will affect the company. If they can improve the quality, save

costs, training employee and expand the business they will achieve easily the goals.


Furthermore, it can be known as the effectiveness, if Vang Company can make

and take the right decisions and do the thing in the right way they can assess the

efficiency. Therefore effectiveness is the liability of the company to achieve the set

targets and objectives. If the output in terms increase it means that the company is getting

the efficiency.

For example

2.2.2: Performance measures for the revenue centers:

These KPIs will show to manager how a business can supply or meet the

customer demand, not only the quantity but also the quality of product and how much the

revenue or benefit they will be received from that. To analyse and know more clearly, the

manager will look at and analyse the data about customer rejects/ returns, deliveries late,

flexibility measures, number of people served and speed of service, customer satisfaction

questionnaire.

In any business, customer is playing an important role in contributing the revenue

for the organisation or the company, if director or manager can meet their customer’s

demands and make them satisfies then they can earn the profit more and easier. As Mr.

Ha Long can see that the quality or the total sales was increasing in three years from 2006

to 2008 (15.000 – 400.000) it means that the business was expanded and growth and also

met the customer requirement. Furthermore, the more product they produced, the more

product supply for their customer. Vang Company can put their T-shirt in retails, stores

or super markets that the customer can buy easier or have relationship with Transport

Company to supply and delivers T-shirt quickly. If the business is developed, Vang

Company can attract or influence customer using or launching their new products and

also compete with other competitor. They can receive the customer satisfaction

questionnaire by using surveys, customer care department and customer meeting monthly

or yearly.

For example, in Nike Corporation, they tried to approach of “risk mitigation”.

Furthermore, they also applied to use significant resources and focus on monitoring and

environment improvement by creating new programs (NikeResponsibility 2012) through

these programs not only the employees can improve their labour skill and work more


effective but also the company can save the cost for producing and increase their product

quality such as in administration, working and delivery. Moreover, Nike have many store

and have contracts with many supplier around the world, it helps them to expand the

business and supply product to customer in anywhere.

Fig14: Nike Global Contract Factory Workers By Region (Nike,INC 2012)

Finally, Nike is a good sport brand and we can see in the figures that they have many

factories and workers that mean the product can be produced and supply for customers

fast. The more workers they have, the more products will be produced so it can be said

that Nike productivity is high. Nike also have web page, fan page, customer care and

many other department that they can receive and fix the customer satisfaction and

questionnaire.

2.2.3 Performance measure for profit center:

As we can see in the table in question 2.1 Mr. Ha Long can discuss and analyse

easily about frofit center.


Fig: Sales vs. Gross Profit

The development in Vang Company be continued discuss in the comparison

between Sales and Gross Profit, the profit increase from 40% to 63% and take 3/2 the

Gross Profit in 2006. Besides, the number of Sales also increases in the several years

from 150.000 to 400.000. It shows that the quantities of product were produced for

customers, suppliers of Vang Company increased. In economic, the more quantities of

product you produce, the more benefit you will earn. It can be said that Vang Company

completed this target and balance the cost to have benefit for company.


Fig: Sales vs. Administrative and Selling Expenses

The Selling Expenses also increase because company must pay the cost for

their employee to sell the product or pay for the retail, store in supermarket and so on.

When the business has more benefit, the manager will expand it to other place. It is the

reason why the selling expenses increased; but in general, these costs were not

significantly compare with gross profit or the net income; which will be analysed in next

paragraph.

Fig: Sales vs. Net income


It can be seen clearly that the Net income will be calculated by taking Gross

Profit plus Administrative and Selling Expenses. For example, the Net income in 2006 is

calculated = 60.000 + (-25.000) = 35.000. Then, the manager can see that in 2008, the

Net income decreased because the costs in Administrative and selling expenses

increased 10 percent more than 2006 to 2007 (3%) so it effects on the net income. The

manager in Vang Company and Mr. Ha Long must control these costs and analyse to

make the decisions in right moments and balance the payment and income to have

highest benefits, develop their company and also saving costs as much as possible. For

example, reducing the wasting costs of electronic from machines, light or apply more

selling solutions to selling more effective.

2.2.4 Performance measures for investment centres:

ROI is called as Return on Investment. These data can show how effective

investment that company invested and profit they receive. In other words, it is the rate

between profit / capital employed. Capital Employed = Total assets – Current Liabilities =

Equity + Non-current Liabilities (Readyratios 2014) through ROI can help Mr. Ha Long to

analyse the business and also release how much investment they can put to have a

most effective business and run as well. It relates to revenue and profit also if the

manager takes right decisions.

In Vang Company, Mr. Ha Long can reference this data in 2006 and 2007 as an

example:

2006 2007

Profit 50.000 75.000

Sales 150.000 285.000

Capital Employed 500.000 250.000

ROI 10% 30%

Fig15: Vang Company Investment Center

As we can see in the table that the invesment of Vang Company is effective and keep

the business grow because the rate of ROI is increased. In 2007 the manager invested

250.000 $ but they can have 75.000 $ in profit the work is more effective than 2006 that

they put 500.000 $ in Capital Employed and got the Profit 50.000 $. Investment Centres

plays an important role in any organisation because if the manager do not know exactly

how they must to invest or cut down the money the business can be detroyed by wasting

money or lacking of money for producing in manufacture and so on.


2.3: IMPROVEMENT TO REDUCE COSTS, ENCHANCE VALUE AND QUALITY:

In the recent years, the quality of product was improved by many new

management techniques. It was contributing parts advanced for quality management

activities such as system “correct time for medium” (Just In Time). It is the basis of Total

Quality Management.

TQM–Total Quality Management is a management approach of an organisation,

quality-oriented based on projected participation of al members and bring about long-

term success through customer satisfaction and benefit of all members of the company

and society. The goal of TQM is to improve product quality and customer satisfaction at

best allowed. The feature of TQM method compare with previous quality management is

TQM provides a comprehensive system for the management and improvement of all

aspects related to quality and mobilize participation every department and every

individual to achieve quality targets set. Vang Company can apply this system to

improve their product quality and also enhance the value. Actually, TQM is a mix of

Quality Control and Productivity Control to approach goals is lead to have “Best Quality

Product”. Vang Company can also apply many management methods such as self-

control or management by fact. It is not only saving the costs for company but also they

will have a synchroisation in all departments. For example, Vang Company will have

close relationship between manufactures and selling or administration department;

through TQM managers can control, follow the business trend and take the decisions

easier and more effective.

It can be also said that in Nike, they had applied the TQM in all their business,

they have more than 900 contract factories, 1 milion workers and more than 500.000

different products but their quality of their product are also good because they shape

sustainability solutions. Another reasons are the business will be influenced by outside

factors such as competitors, government and customer. They realise that if they produce

a best product for customer they can also compete with competitors and also attract

more customer and improve product quality. TQM also focus on the enviromental in

manufacture to save and have healthy products (Nike,INC 2012). From that, Vang

Company can apply these methods for their business. They can improve their

administration, manufacture management and also improve the quality of T-shirt by

improving their employee’s skills, take decisions about location, suppliers, and

warehouses. When the quality is good, it means that the business will have more


customers and the revenue also. It is the reason why Vang Company should apply and

run TQM in their business.


3.0: CONCLUSION

After calculating and analysing we can be said that financial is very important for any

company; which want to develop and minimize the cost. Through this, the manager can

also manage and control the business trend. Vang Company is an example; which show

how to develop a business to compete with other competitors and attract more

customers.


4.0: REFERENCES

Owen Vanderbilt (2001) Cost Volume Profit Analysis [Online] available from

< http://www2.owen.vanderbilt.edu/Germain.Boer/mgt413/cvp/cvp.html> [25 March

2014]

Nike Responsibility (2012) Manufacturing [Online] available from

< http://www.nikeresponsibility.com/report/content/chapter/manufacturing> [28

March 2014]

Iam sam hubpages (2014) Method of Costing and Types of Costing [Online] available

from

< http://iamsam.hubpages.com/hub/Methods-of-Costing> [28 March 2014]

UK Essays (2014) Different types of cost [Online] available from

< http://www.ukessays.com/essays/accounting/different-types-of-cost-that-

an-organization-would-incur-accounting-essay.php> [25 March 2014]

Word Press (2008) TQM definition [Online] available from

< http://nqcenter.wordpress.com/2008/04/20/quan-ly-chat-luong-toan-dien-tqm-

la-gi/> [27 March 2014]


http://www.ukessays.com/essays/accounting/different-types-of-cost-that-

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Accounting Assignment1