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MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY
TRAN THI DU
Improvement of cost accounting and enhancement of
cost management in animal feed processing enterprises. Major: Accounting (Accounting, auditing and analysis)
Code: 62.34.30.01
SUMMARY OF THE DOCTORAL THESIS IN BUSINESS AND
MANAGEMENT
HA NOI - 2012
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PREFACE

I. Introduction
1. The reason for choosing the research topic
Accounting is considered as a tool of financial management because it
provides the information necessary for finance through accounting reports,
especially information of management accounting. Thus, in an enterprise,
accounting is always connected with the functions of managers including
planning, organization, direction and coordination, comparison of actual results
with the plan. Animal feed processing enterprises (AFPEs) of the animal feed
processing industry are operating in an environment with a lot of difficulties
related to the production and consumption of products; improvement of
accounting costs in AFPEs has become an urgent need for AFPEs to provide
information for the process of cost management and business management of
enterprises. Therefore, the author chose the topic "Improvement of cost
accounting and enhancement of cost management in AFPEs"
2. The purpose of research
With the research topic, the author will go into the systematization of
theories of cost accounting in production enterprises. Also, the author will
survey and assess the real situation of cost accounting in AFPEs in Vietnam.
Since then, the author will offer solutions and conditions to apply cost
accounting to AFPEs in Vietnam to enhance cost management in this type of
enterpries.
3. Research subjects
Firstly, the thesis studies theories of cost accounting in production
enterprises in order to make a general theoretical framework of cost accounting

Company and Kien Cuong Production and Trading Co., Ltd. However, the topic
only offers assessment on the real situation of cost accounting in these three
enterprises without the investigation and assessment on a large scale to draw
objective conclusions of real situation of cost accounting for AFPEs in general
and AFPEs according to each scale. In addition, there are some essays, thesiss
studying this issue such as the thesis "Direction of building management
accounting reporting system and organizing application to enterprises of
Vietnam" (2002) (Pham Quang - National Economics University), the thesis 5

"Building of cost management accounting model in pharmaceutical
enterprises of Vietnam" (2007) (Pham Thi Thuy - National Economics
University), the thesis "Management accounting and analysis of production
costs in the production sector in Vietnam" (2002) (Le Duc Toan- Academy of
Finance.) Some theses also studied on accounting management as the thesis
"Direction of building contents and organizing the application of
management accounting to enterprises of Vietnam" by the author Pham Van
Duoc (2007) (Ho Chi Minh City University of Economics), the author Tran
Van Dung with the thesis: "Organization of management and cost price
accounting in production enterprises in Vietnam" (2002 –Academy of
Finance), the author Giang Thi Xuyen (2002) with the topic "Organization of
management accounting and business analysis in state-owned enterprises",
the author Pham Thi Kim Van (2002) with the topic "Organization of cost
management accounting and business performance in tourism trading
enterprises", the author Nelson U. Alino with the topic “The Effect of
Management Accounting Systems on Reducing Conflict and Improving
Decision-Making in Heterogeneous Groups” (University of Nigeria, 1990), the
author Robin A. Sanford with the topic “The impact of activity-based costing on


Chapter 1:
BASIC THEORY OF COST ACCOUNTING AND COST
MANAGEMENT ENHANCEMENT IN PRODUCTION ENTERPRISES
1.1. Concepts of cost, cost management and cost accounting
information and enhancement of cost management in production
enterprises
1.1.1. Concept of cost
According to the conception of political economy, cost is the monetary
valuation of wastes of human labor and materialized labor that enterprises invest
in production and business organization for a certain period of time. According
to the concept of cost from the accountant's perspective, in financial accounting,
"cost includes production and business costs arising in the business operation of
enterprise and other costs." For management accounting, costs are very various.
It can be actual costs incurred such as costs in financial accounting; in addition,
there are estimated costs that are non-incurred costs, opportunity costs are the
costs that are not in the accounting books or could be estimated or expected
costs of an activity. Thus, there are a lot of concepts of cost, especially in
management accounting. This indicates that there is no single definition for the
cost because of two reasons: Firstly, the costs incurred and used for some
specific purposes; secondly, the way to use cost will determine how to calculate
the cost and record, analyze, process costs. For management accounting,
depending on the purpose of using cost information, the cost will be collected,
calculated and analyzed in different ways or under different classifications to
exploit relevant cost information for decision-making in a most efficient way.
1.1.2. Cost management, cost accounting information and enhancement
of cost management in production enterprises
Corporate governance is a continuous, organized and targeted process of
impact of enterprise owner on employees in it, using the best of the potential and
opportunity to implement its business and production activities to achieve the set

through trial production or testing. Estimation is a plan on using resources in a
period, expressed as detailed expectations of the mobilization and use of
production factors, financial resources to ensure that the activities of the 9

enterprise takes place normally, contributing to improve the effectiveness of all
activities.
* Building of cost norms: Norm of direct material costs, norm of direct
labor costs, norm of production overhead costs, norm of sales cost, and norm of
corporate governance cost.
* Cost estimates.
Cost estimates are divided into static estimates and flexible estimates:
Static estimates: are estimates built on a level of operation in order to
provide information of cost, revenue and profit of enterprise that can be
achieved under the selected business project. The thesis presented direct
material cost estimates, direct labor cost estimates, production overhead cost
estimates, sales cost estimates and corporate governance cost estimates.
Flexible estimates: are estimates built on a series of operational levels to
provide information of cost, revenue and profit of enterprises that can be
achieved under the business projects and possibilities.
1.2.3. Determination of costs for cost objects
1.2.3.1. Collection of cost information
Collection of accounting information is often expressed through such stages
as: collection of initial information about costs through a system of documents,
collection, classification and systematization of cost information on accounts
and accounting books, collection of information through a system of accounting
reports.
1.2.3.2. Cost determination methods for cost objects

manner, it is necessary to identify two parameters:
Firstly, how many costs are needed for a time unit of the department with
incurred costs.
Secondly, how many time units are needed to implement the activity.
In addition, ABC method uses activity level – based cost allocation. As a
result, in the process of ABC system development, three allocation criteria are
formed:
+ Operating frequency based cost allocation
+ Time - based cost allocation
+ Work level - based cost allocation 11

- Target cost is the aggregation of methods and administrative tools
permitting to achieve objectives of cost and operation in the stage of
designing and planning new products. This method also allows providing the
basis of control at the production stage and guaranteeing these products to
achieve profit targets that have been identified in line with the life cycle of
product.
1.2.4. Cost analysis and decision-making on cost management
- Analysis of cost fluctuation through historical information analysis.
Analysis of cost fluctuation through historical information analysis includes cost
fluctuation analysis based on cost norms and cost estimates, analysis and
assessment of performance of responsible centers, cost fluctuation analysis
through cost price reports and business performance reports.
- Analysis of appropriate information for decision –making and future
forecast. Analysis of future information includes analysis of the relationship of
Cost-Volume-Profit, analysis of breakeven point and use of appropriate
information for decision – making.

draws lessons for the organization of cost accounting model in Vietnam.
Through the Chapter 1, the thesis systematizes theories of cost accounting to
enhance cost management in production enterprises, as a basis to assess the
situation and offer solutions to perfect cost accounting to increase cost
management in AFPEs.
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Chapter 2:
REAL SITUATION OF COST ACCOUNTING AND COST
MANAGEMENT ENHANCEMENT IN AFPES 2.1. Overview of AFPEs
- System of AFPEs
Animal feed processing industry in Viet Nam is a fledgling industry that is
advent and developed in line with the breeding sector in Vietnam. Since 90’s
period of reform, animal feed processing industry of Vietnam achieved rapid
development steps. According to Animal Feed Association, until September,
2006, there were 249 companies; in 2010, there were 315 AFPEs; in August
2011, there were 486 AFPEs all over the country. Number of factories have
increasingly grown along with the development of the industry and have been
distributed in the North, the Central and the South. Along with the increase in
number, growth rate of animal feed processing industry has also increased over
the years.
Table 2.1: Animal feed production industry in Vietnam in the period of 2000 -
2008


4,361 747 5,118 6,600 23.5 14

2007
5,300 825 6,125 7,776 17.8
2008
6,882 684 7,567 8,935 14.9
Average (%) 16.6
Source: Breeding Development Strategy to 2020
(Department of Livestock Production 2007)- Product characteristics and production organization in AFPEs
affecting cost accounting.
Animal feed production technology is characterized
by mass production. Animal feed production process is a continuous and closed
one.
-

Steam
chamber
to ripen
Palletizin
g

Freezing

Screening
Weighing,
packingWeighing,
packing
Put
materials 15

narrowing production and in short-term decisions such as regulations on cost
norms, cost estimates, decisions on the use of resources and in decision on sales
pricing.
- Characteristics of accounting apparatus organization and
accounting policies applied in AFPEs.
All animal feed production activities
are concentrated at the factory, so accounting apparatus organization is selected

Real situation of cost estimate
: Companies have paid attention to
making sales estimates. The remaining estimates had a low rate of estimation.
2.2.3. Real situation of cost determination for cost object
- Real situation of collection of cost information:
System of accounting
documents, system of cost accounting accounts and system of accounting books
have met the needs of financial accounting; however, as for management 16

accounting, real situation of information collection made no contribution to the
collection of cost information as requested.
- Real situation of cost determination for cost object in AFPEs
+ Real situation of production cost determination in AFPEs:
In
AFPEs, production costs are detailed for each type of product or generally
gathered for the whole workshop. Cost object is finished product in the last stage
of production technology process; object of cost pricing is each type of product.
+ Transfer of production costs and assessment of products in
progress:
In AFPEs, the entire cost of production will be transferred to
Accounts 154 or 631 to calculate cost price.
+ Calculation of cost price of finished products:
Through the survey,
100% of surveyed AFPEs selected cost object that was each type of product,
46/52 enterprises (88.5%) used simple method, 5/52 enterprises (9.6%) used the
ratio method, and only one enterprise (1.9%) selected coefficient method.
According to the survey results, two among 52 surveyed enterprises

The number of surveyed enterprises
allocated sales cost and corporate governance cost for each type of product,
market, branch according to the following correlative ratio: 16/52 enterprises
(accounting for 30.8%), 8/52 enterprises (making up 15.4%), 4/52 enterprises
(accounting for 7.7%). The criterion that enterprises selected were the allocation
based on output, revenue or prime cost
+ Analysis of cost fluctuation through reports on costs
36/52 enterprises (69.2%) determined the rate of return on investment
capital (ROI), 10/52 enterprises (19.2%) determined Residual Income (RI) and
17/52 enterprises (32.7%) identified the rate of net return on assets.
+ Analysis of cost fluctuation through the reports on costs, cost price
and business performance:
The number of AFPEs implementing cost
fluctuation analysis through the reports on costs, cost price and business
performance were few.
- Real situation of relevant information analysis for decision-making
and future forecast
Output analysis
: According to the survey results, up to 50/52 enterprises
(accounting for 96.2%) conducted the comparison and analysis of actual
production output with planed output or design-capacity-based output.
Determination of breakeven point
: According to the survey results,
AFPEs initially performed determination of breakeven point.
2.2.5. Real situation of cost accounting apparatus model:
Management
accounting department in AFPEs was organized commonly with financial
accounting apparatus, i.e. mixed cost accounting apparatus models.
As for financial accounting, most of AFPEs
complied with the provisions on accounting accounts of financial accounting.
However, accounting accounts did not serve management accounting.
- Evaluation of real situation of cost determination in AFPEs For object of cost accumulation and cost object
: AFPEs selected object
of production cost accumulation that was each product or each workshop and
cost object being each type of product. However, they did not calculate cost for
each product batch or determine the cost for each customer or branch to assess
the profitability and performance of each customer or branch.
For methods of cost determination:
All surveyed AFPEs identified cost 19

of products according to the actual cost method and determined the cost of
products according to the full cost methods. The number of AFPEs applying
normal cost method and direct cost method was few and no enterprise applied
ABC method.
- For overhead cost allocation
: Overhead costs in AFPEs were arising
costs related to many cost objects and most of the AFPEs selected output as
allocation criteria; the remaining companies used criterion of direct material
costs.
2.3.4. Evaluation of processing and analysis of relevant cost
information for decision – making
- Evaluation of cost fluctuation analysis through historical information

for the implementation process.

For analysis of appropriate cost information for decision-making on
corporate governance in the special cases:
Many AFPEs did not pay attention
to the processing and analysis of cost information serving cost management and
decision-making.
2.3.5. Assessment of real situation of cost accounting model
AFPEs implemented combined cost accounting model, so costs were
saved, apparatus was compact but works of management accounting were not
professionalized and information was not timely provided.
In summary,
the need for providing cost accounting information for
managers in AFPEs is very huge in the context of highly increasing price of raw
materials, increasing production costs and consumption of products facing a lot of
difficulties. The thesis used scientific methods to review real situation of cost
accounting and cost management enhancement in AFPEs. The thesis provided the
advantages, limitations and reasons of cost accounting situation in AFPEs in terms
of cost classification, norm establishment and cost estimate, cost determination for
cost object and analysis of relevant cost information serving decision-making. It
also reviewed the current situation of cost accounting model in AFPEs. Since then,
it offered conclusions on the real situation of cost accounting and enhancement of
cost management in AFPEs that had many limitations, did not fully provide cost
information systems necessary for cost management in AFPEs. Therefore, it is
necessary to improve cost accounting to enhance cost management in AFPEs.
Assessments and conclusions on the real situation of cost accounting in AFPEs will
be the basis for the thesis to provide specific recommendations to improve cost
accounting in AFPEs in the chapter 3, helping to improve effectiveness of cost
management, bringing higher profit to AFPEs.


3.3. Solutions of improvement of cost accounting in AFPEs
3.3.1. Improvement of cost classification
The author provided solutions to improve cost classification in AFPEs 22

including cost classification based on purpose and use, cost classification based
on cost behavior and cost classification based on the relationship between the
cost and object of cost accumulation.
3.3.2. Improvement of building of cost norms and cost estimate
3.3.2.1. Building of cost norms
The thesis built norm of direct material costs, norm of direct labor costs,
norm of production overhead costs and norm of sales cost, norm of corporate
governance cost that were appropriate with actual characteristics of AFPEs.
3.3.2.2. Cost estimate
The thesis established production cost estimates of AFPEs in reality
including estimates of direct material costs, estimates of direct labor costs and
estimates of production overhead cost and these estimates were made according
to two directions of static estimates and flexible estimates.
3.3.3. Identification of cost price for cost object
3.3.3.1. Collection of cost information
The thesis recommended solutions of improvement in the stage of
information collection including perfection of the system of accounting
documents and accounts to ensure collection of detailed information to perfect
the system of cost accounting in AFPEs.
3.3.3.2. Solutions of determination of cost price for cost object
The author recommended that AFPEs should apply method of variable-
cost-based cost calculation, work-based cost determination in combination of
allocation of estimated production overhead costs under normal cost method to

The thesis recommended that AFPEs should build a system of indicators of
cost analysis: analysis of cost-volume-profit, analysis of cost fluctuation based
on the cost norms and cost estimates, analysis and assessment of business
performance in responsible centers, analysis of cost fluctuation through reports
on costs, cost information for decision-making in business management and
organization of responsibility accounting.
3.3.5. Selection of cost accounting model in AFPEs.
According to the author, large-scale enterprises can perform separate
management accounting model. Small and medium-sized AFPEs should use
hybrid model.
3.4. Conditions to implement solutions of improvement of cost
accounting in AFPEs
To implement the recommended solutions, the author gave conditions to
implement on the side of the State, the Vietnam Association of Animal Feeds,
the Vietnam Association of Accountants and Auditors (VAA) and AFPEs. 24

CONCLUSION

AFPEs operate in the socialist-oriented market economy with the
management of the state. These enterprises are proactive in the mobilization and
use of business and production capital. To achieve high business performance,
managers of enterprises in general and AFPEs in particular should be timely
provided with appropriate information for decision-making process, in which
information provided by cost accounting plays an importance role in information
system serving corporate governance. To see the importance of costs in the
process of corporate governance, the thesis analyzed the relationship between
cost accounting information and cost management in production enterprises.

Accountants and Auditors and AFPEs.
However, from awareness of the need of management accounting in
business and production activities to bringing of management accounting to
become a useful, smoothly operated and regularly updated system is a difficult
job. It needs a team of qualified and experienced accounting staffs and a
combination of the departments in the company, the participation and support of
all its managerial levels, especially senior executives. At that time, management
accounting can become a powerful tool to serve decision-making and economic
and financial management of the unit.
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LIST OF WORKS BY THE AUTHOR

1.
Tran Thi Du
(2011), “Method of activity-based cost determination:
Theoretical progress of management accounting”
Accounting-Auditing
Magazine,
Edition dated August 2011
2.
Tran Thi Du
(2011), “Methods of mixed cost analysis: From theory to
application in the reality by animal feed processing enterprises” ,
Accounting-Auditing Magazine
, Edition dated December 2011
3.