ACCAssignment 1 Template

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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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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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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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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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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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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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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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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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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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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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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=> 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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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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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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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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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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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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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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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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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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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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http://www.vietnam-briefing.com/news/minimum-wage-levels-rise-foreign-companies-2010.html/

http://www.vietnam-briefing.com/news/minimum-wage-levels-rise-foreign-companies-2010.html/

http://smallbusiness.chron.com/overhead-expense-33127.html

http://www.businessdictionary.com/definition/direct-cost.html

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