the impact of accounting information

8/12/2019 The Impact of Accounting Information

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THE IMPACT OF ACCOUNTING INFORMATION

ON MANAGEMENTS DECISION MAKING

VINAMILK CASE STUDY


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DECLARATION

I hereby declre !h! !he "rd#!$%& 'r%(ec! $) b)ed %& *y %r$"$&l +%r, e-ce'! .%r

/#%!!$%&) &d c$!!$%&) +h$ch h0e bee& d#ly c,&%+led"ed1 I l)% declre !h! $! h)

&%! bee& 're0$%#)ly %r c%&c#rre&!ly )#b*$!!ed .%r &y %!her c%#r)e2de"ree ! HELP

U&$0er)$!y C%lle"e %r %!her $&)!$!#!$%&)

ACKNO3LEDGEMENT


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The V$e!&* D$ry Pr%d#c!) 9%$&! S!%c, C%*'&y :V$&*$l,; +) e)!bl$)hed $& 6

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c%**erc$l %r"&$!$%&) +h$ch &eed !he cc%#&!$&" $&.%r*!$%& !% )#r0$0l &d

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l!h%#"h +$!h$& !he 'r%d#c!$%& c%)!) !here +%#ld be .$-ed c%)!)4 l$,e de'rec$!$%&1 Th#)


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lb%r c%)!) %. !he 'r%d#c!$%& re l)% )ee& ) 0r$ble1 I& dd$!$%&4 V$&*$l, 'r%d#ce)

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)h%#ld c%&)$der !he .$&&c$l $&.%r*!$%& )#ch ) .$&&c$l r!$% $& %rder !% #&der)!&d

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Ch'!er B7 L$!er!#re re0$e+

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*&"e*e&! cc%#&!$&" c& hel' *&"er) $& *,$&" dec$)$%&) ) +ell1 I& %rder !%

clr$.y !he rel!$%&)h$' be!+ee& *&"e*e&! cc%#&!$&" &d dec$)$%&5*,$&"4 !he b%!h

%. c%&ce'!) +$ll be 'r%0ed $&de'e&de&!ly $& !he .%ll%+$&"1

B16 Dec$)$%& *,$&" 'r%ce))

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A dec$)$%& $) ch%$ce led$&" !% cer!$& de)$red %b(ec!$0e :H%l)''le4 ''1 ? >;1

A 'er)%& %r %!her d$..ere&! 'r!$c$'&!) !h! re $&cl#ded $& dec$)$%&5*,$&" c& be


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clled dec$)$%& *,er)1 I&d$0$d#l dec$)$%&) c& be *de by c%*'#!er %r )$&"le 'er)%& +h$le

!he 0r$%#) dec$)$%& *,er) c& be d$0$ded $&!% $&de'e&de&! &d

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)%*e c$rc#*)!&ce)1

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%& !he dec$)$%& *,er1 I& )%*e *%del %. dec$)$%& *,$&" 'r%ce))4 e0ery dec$)$%& h) !%

.%ll%+ )%*e c%**%& )!e')1 The)e )!e') c& be ''l$ed .%r dec$)$%& *,$&" 'r%ce))

#)e.#lly :H%l)''le 4 '1=6;1

F$"#re 6 $&d$c!e) !he d$"r* %. dec$)$%& *,$&" 'r%ce))1 There re )e0e& )!"e) $&

Dr#ry) *%del1 The .$r)! .$0e )!"e) )h%+ !he 'l&&$&" %r dec$)$%& *,$&" 'r%ce))1 I! $)

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de!$led 'er.%r*&ce %. !he l!er&!$0e) ch%)e&1 :Dr#ry4 '1>5


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but also difficult step in the decision"making process. The management has to look for alternativeways of action that enable goals to be achieved. Thus the organization has to look at its environment

for challenges and opportunities.

3. Gather data about alternatives: The *&"er) )h%#ld cce)) !he '%!e&!$l "r%+!h r!e %.

c!$0$!$e)4 '%!e&!$l re) %. c%*'&y $& %rder !% "$& *r,e! )hre &d c)h .l%+1

F#r!her*%re4 !he dec$)$%& *,er) h0e !% d$..ere&!$!e be!+ee& cer!$&!y4 #&cer!$&!y'r%ble* !h! re d$..$c#l! !% c%&!r%l )#ch ) $&.l!$%&4 c%*'e!$!$%&) )!re&"!h e!c1 D! &d

$&.%r*!$%& re "!hered by b%!h )h%r! !er* &d l%&" !er* dec$)$%&1 4. Select alternative

courses of action7 The dec$)$%& *,$&" $&cl#de) !he ch%%)$&" be!+ee& c%*'e!$&"

l!er&!$0e c%#r)e) %. c!$%& &d be)! )!$).$e) %b(ec!$0e) %. !he c%*'&y1 F%r e-*'le4 $.

!he 'r%.$! *-$*$!$%& $) *$& %b(ec!$0e4 ll %'!$%&) )h%#ld be 'l&&ed $& !er*) %&

d$..ere&ce) $& 'r%.$!1 The %'!$%& !h! )ee*) !% ch$e0e !he "%l be)! !he& $! )h%#ld be

)elec!ed by !he dec$)$%& *,er)1 5. Implement the decision7 Th$) $) .$&l )!e') %. 'l&&$&"

'r%ce))1 A.!er ch%%)$&" !he be)! l!er&!$0e)4 !he dec$)$%& +%#ld be c%&d#c!ed !hr%#"h !he

'l&&$&" 'r%ce))1 The *&"e*e&! h) !% c%&)$der cre.#lly &d c%**#&$c!e) +$!h %!her

'e%'le $& !he %r"&$!$%& +h% +%r, cl%)ely !%"e!her be.%re !% $*'le*e&!!$%& dec$)$%&

2.1.2 Control process 6. Compare actual and planed outcomes: This is the first stage of control

process. The managers should compare actual implementation and budgeting, and then determine

what the difference is. #n accountant has to set up presentation reports which provide feedback by

comparing results with plans. 7. Respond to divergences from plan: #fter the alternatives chosenshould be fre$uently checked and if the results of the decisions made differ from the designed one,

corrective actions should be taken.

2.1.3 Limitations of Drury model

There are several reasons criticized %rury model. &irstly, the right decisions are easily and clearly

identifiable. 'econdly, it does not include factors, like emotions, imagination, memories, culture and

mindset of the decision"makers. &inally, it is built on ()


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the idea that each step can be clearly separated from the other that does not correspond to the realityof decision making. *+angley, pp.-("-/ 2.1.4 Long term and short term decisions The decision

can classify into long term and short term decisions. +ong term decision refers to the decision thatimpacts on the longer periods of time *Ibid. p. 0/. In organization, long term decision may be a

capital investment such as buying machinery, building factory and so on. 1n the other hand, short

term decision is the decision that affect on one year or less than one year *Ibid. p. 22/. This decision

is based on currently data and be easily to changes. The one of eample of short term decision isdetermining of acceptation or rejection order. 2.2 Management accounting and decision making

#ccording to investorwords.com, accounting is defined as the systematic recording, reporting andanalyzing of financial transactions of a business. There are two types of accounting which are

management accounting and financial accounting. In this project, management accounting would befocused. 3anagement accounting refers to the process of preparing management reports and

accounts that provide accurate and timely financial and statistical information re$uired by managersto make day to day and short term decisions *www.businessdictionary.com/.

The management accounting information plays a vital role in decision making of the managers.#ccounting can be viewed as the process of identifying; measuring and communicating economic

information to permit informed and predicted decisions for the user of information. *4orngren

pp.(0.(0/. This means that understanding clearly of accounting information will help themanagement to give out better decisions for the organization. 3anagement accounting is a division

of information systems of an ((


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organization. 3anagers rely on accounting information for management planning and controlactivities of the organization *4ilton, (55(/. Therefore, the reported and collected accounting

information can influence on making management!s decision and it will result in the management tomake decisions that are consistent with the organization!s goals. 3oreover, the decision maker often

decides what information is inputted and considers information as relevant for the decision. 6sing

accounting information depends on different decisions and it often relies on the choices of decision

maker whose may be affected by eperience, perceptions and objectives. #pparently, accountinginformation is used for decision"making rises if the information provided is relevant for the decision,

and again. The increasing decision making is also relies on the decision maker who regards theaccounting information as reliable and trustiness. 2.3 Defining the cost terms: 1. cost is known as

the resources are in place to complete a special reason. It is very common to determine the amountthe cost of money to obtain goods and services. *4orgngren, p. (22/ 2. cost object is looked as a

cost of products and as well as costs of a department or service. *%rury, p. (/ !. "i#ed cost andvariable cost: &ied cost refers to the cost that does not increase or decrease when level of activities

decrease or increase. 'o the cost per unit will decrease when the level of activities increase and again.1n the other hand, variable cost is the increasing or decreasing cost when the activities increase or

decrease. 7ut for per unit, the level of activity is constant cost, and it will disappear when stop

working. *Ibid., pp. 5 8 2)/ (


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$. %irect cost and indirect cost: %irect cost is known as the cost that is easily and convenientlymonitored to the particular cost object under consideration. 3eanwhile, indirect cost is known as all

the other costs that cannot be related to or identified with, a particular cost object underconsideration. *www.accountingformanager.com/ &. Relevant and irrelevant cost' 9elevant costs are

those costs that can be affected by

decisions whereas irrelevant costs cannot be affected through a certain decision. It may be irrelevant

for some situations, but relevant for others. amples of irrelevant costs involve fied overheads,notional costs, sunk costs and book values *www.businessknowledgesource.com/. 2.4 ools for

decision making In order to make a better decision by using accounting information, managementhas to rely on the tools of accounting system. There are many tools of accounting, but in this thesis,

three accounting tools are discussed. &irstly, the cost accounting system determines the costs that areaccounted in goods produced of company. 4ence, management needs to understanding about the

information of costs that occur in an organization. This tool is considered as the most important toolin guiding decision. 7ecause the management would be able to set prices and estimate profit based

on information about costs. 'econdly, pricing and competition tool would be discussed It involvesthe ideas of target costing and cost plus pricing, competition. &inally, profitability tool would be

recommended. 2.4.1 Cost accounting system

ost accounting refers to a part of accounting that evaluates the overall costs associated withconducting business. The main aim of cost accounting is basically providing product costing

information for financial statements, control, and decision making (2


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*www.wisegeek.com/. # cost accounting system includes two steps, the cost gathering by classifyingcosts into categories and the assignment of costs to cost objects. The first one refers to the collection

of costs by using classification criteria, like the relevance of costs or the cost behavior. %ifferenttypes of costs are available for different decisions. 4ence, as first step is useful for decision"making

to sort out costs as fied or variable, relevant or irrelevant and direct or indirect. &or eample, when

the management wants to make"or"buy machinery, decisions will concentrate on relevant costs in a

particular decision situation. The second one is cost allocation related to indirect costs that areallocated to a cost object. It is related to methods of classifying the direct and indirect cost, and

determining which is important for cost accounting system. In generally, there are two main methodsof allocating indirect cost: traditional accounting system and activity based costing *#7/. The first

one refers to the allocation of factory!s indirect cost to product manufactured. That means traditionalaccounting system allocates the indirect cost to cost centers. It is rely etensively on the volume

based allocation such as the direct labor hours, number of units produced, or machine hours. &oreample direct labor hours are used as a basis to allocate costs of materials to a cost object *%rury, p


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1n the other hand, activity based costing will be used when the process of production is morecomplicated and used more cost driver. 4owever, using activity based costing will be more epense

and low benefit. !igure 2.2: (raditional costing vs. ctivity based costing )source from internet*

2.4.2 Price and competition

# price is epressed in the currencies of commodity value or in other words is the number of money

pay for goods. =rice is also considered an important competitive factor in attracting customers of all

businesses. =ricing decisions can categorize into short term and long term decision. The first onerefers to the price made for the day to day decision or in short time decision. 1therwise, the second

one is that the price would be determined for the long time of products. =ricing decisions making areone of the most important decisions that the management have to face *4orngren/. The results of the

making pricing decision for new products or responds to price of competition are (


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very important because if a company wants to be survival and develop in the future, it has to have areasonable price policy. The price decision has to not only affect to the market demand but also attain

the company!s objectives. There are some factors that affect to pricing decisions such as legalre$uirements, competitors actions and customer demands. There are two common tools for pricing:

target costing and cost"plus pricing. The target costing is known as an effective tool to keep the

customer value while reducing costs. 7efore products are designed, the target costs are established

based on estimated selling price of the product and the company>s profits. 3eanwhile, cost pluspricing refers to the adding an amount or a percentage of the cost of production and product

distribution. This is tools for the company to make the maimized profit. ompetition is way to useother word for company rivals producing similar products or services. ompanies usually use

resources effectively, business opportunities to win other companies in order to ensure thedevelopment of business. There are many methods of competition: price competition *lower

prices .../ or non"price competition *advertising .../ or competitiveness of a business, an industry, acountry is the level at which, under conditions of free market and fair can produce commodity

products and services to meet the demands of the market and creating jobs and raising real incomesrespectively. ompetition is the gain of market share. The nature of competition is the search for

profit which is higher than average profits of enterprises. The outcome of the competitive process is

the average profitability of the industry which trend to effect in depth, then lead to the price may bereduced *3ichael =orter, (50)/ 2.4.3 Profita"ility=rofitability is defined by the ability to make a profit meanwhile profit can be defined as the

difference between total revenue and total cost. =lanning of profit is often conducted (-


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during the budgeting process. =rofitability will be achieved when the right decision was made by themanagement and cost control is also good. There are some accounting tools related to profitability

are: ?ross profit is defined as the difference between net sales and cost of good sold *4orngren . etal. *))/, p.


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position if inventory contain obsolete or slow moving items. If the ratio is greater than ( generallyshows that the entity!s li$uid asset are sufficient to meet the cash re$uirement for paying current

liabilities. 2. Capital structure %ebt to e,uity is calculated by the short term and long term debtdivided by the shareholder!s e$uity. This ratio provide information on solvency of the entity !.

/perational capability These ratios indicate how effectively the entity!s assets are managed.

Therefore, the ratios related to account receivable and inventory of companyReceivable turnover is

defined as credit sales divided by receivables. The ratio represents that how many times accountsreceivable are turned over during a year. Inventory turnoverprovide information on the inventory

and is calculated as cost of good sold divided by average inventory. In this case, the averageinventory e$uals sum of beginning and ending inventory divided by two. This ratio indicates that the

fre$uency with which inventory is consumed in a year. The higher ratio is the better li$uidatinginventory. $. 0rofitability ratio It indicates the entity!s success or failure for a given period. #

number ratios measure the profitability of an entity, and each ratio should be interpreted bycomparison to industry data. ross profit percentage: is generally a good indicator of potential

misstatements and is calculated as gross profit divided by net sales.0rofit margin: the profit margin ratio is calculated as net income of company divided by net sales.

This ratio measures the entity!s profitability after all epenses are considered. (0


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The fluctuation in the ratio indicates that misstatements eist in the selling, general or administrationepense.Return on assets: this ratio shows the return earned on the resources invested by both the

shareholders and the creditors. It is calculated as net income divided by total assets.Return one,uity' the ratio is defined as net income divided by shareholder!s e$uity The ratio measures an

entity>s profitability by illuminating how much profit a company generates with the money

shareholders have invested. (5


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secondary data is better choice than ones. 'econdary data is defined as public data or data collectedin the past or outside of company. 'econdary information sources of internal business are plentiful

and can be processed to provide good information for the preparation of the decision. &or eample:receipts, sales receipts, public debt reporting, accounting reports, evaluation of personnel. 'econdary

information sources of outside such as newspapers, magazines, books such as management

accounting policies, businessmen management, strategic management, business activities analysis.

'econdary data are used for three research purposes. &irstly, they fill a need for a specific referenceof $uotation to demonstrate why the proposed research fills a void in knowledge base. %ata from

secondary source can help to decide what further research needs to be done and can be rich source ofhypothesis. 'econdly, secondary data are an integral part of a larger research study to justify having

bypassed the cost and the benefits of doing primary research. #nd thirdly, secondary data may beused as the sole basis for a research study, since in many research situations on cannot conduct

primary research because of physical, legal and cost influence.?enerally, secondary data has some advantages. 'econdary sources can usually be found more

$uickly and cheaply than primary data, especially when national and international statistics areneeded. ollecting primary data can be costly and time consuming as to be impractical. 3oreover,

most research on past events also has to rely on secondary data sources. 'imilarly, data about distant

places often is collected more cheaply through secondary sources. 1n the other hand, secondary datahas a number of disadvantages. Dot all secondary data is readily available or inepensive. %ata

mining of company databases that are not designed for unstructured searches can be epense because

of the large amount of time such as activity consume. 7esides, the researchers may have less


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control over how the data was collected. 1therwise, it is difficult to assess the accuracy of theinformation and the data may be out of date. 2


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Chapter 4: %nalysis 4.1 Company presentation &ietnam Dairy Products 'oint (tock Company

)&inamilk*

+ead,uarter () Tan Trao 'treet, Tan =hu Aard, %istrict @, 4o hi 3inh ity Tel: *0.0/


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-ranch in Da ang ( hi +ang 'treet, 4ai hau Aard, 4ai hau %istrict, %a Dang ity Tel :*0.


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on nutrient and healthy products for human life and to be positioned one of


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" )): #c$uired 'aigon 3ilk Joint 'tock ompany and increased share capital of the company toD% (,


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"igure $.2' 4anagement organi5ational structure of inamil )adapted vinamil.com* 4.2 %nalysis

case study: This section will be divided into two parts. The first one concerned about the accounting

tools are applied in inamilk. #nd the second one will focus on how inamilk can use theseaccounting tools in decision making process. 4.2.1 %ccounting tools are used in &inamilk #s the

mentiond on the theory, action of the management accounting is in order to achieve the company!s

strategic objective. 1fficially, the main intention of inamilk stated on the homepage is customer

satisfaction. 4owever, the indirectly goals of company implies the purpose of profit generation.Therefore, inamilk considers profitability as the most important accounting tool. #nd other vital

tools will be epressed in the following: ost accounting system, pricing and competition. 0

4.2.1.1 Cost accounting

system The implementationcosts are considered

carefully in order to reducecost and increasing profits

for companies. The processof cost control is carried out

right from purchasing raw

materials to sales process.specially in the

manufacturing process, to

reduce materialconsumption, the company

set the technicalspecifications for each

product. very month,management accounting

department tracking ofproduction costs through the

periodic reports on theproduction costs of each

unit, the report analyzes theuse of materials... 7ased on

these reports, company

control costs better in the

production of net month.The report will be reviewed

regularly by themanagement. 'tructure

costs of the company: ostelement

Near )() Near ))5

alue K in 9evenue alue K in 9evenue

( ost of

goods sold

(),-@-,@(5,

0)(,5--

[email protected] -,@@@,


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the impact of accounting information

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