National Economics University
School of Accounting and Auditing
COURSEWORK ASSIGNMENT
BUSINESS ANALYSIS
Name: Nguyen Dang Duy Phuc
Class: Accounting CFAB K61
ID: 11196416
Lecturer: LE NGOC THANG
April, 2022
Part A
1) The implementation of direct material cost in July
Produc
tion
levels
(units)
Actual
produc
tion
levels
(units)
Materi
al cost
per m2
(millio
n VND)
Actual
materi
al cost
per m2
(millio
n VND)
Materi
al
usage
per
unit
(m2)
Actual
materi
al
usage
(m2)
Actual material usage per unit (m2)
Plan Adjusted
plan Plan Adjuste
d plan
Pla
n
Adjuste
d plan
Q0Q’0Q1C0C'0C1U0U'0Q1 x U1U1
Bed
sheets
(B)
120,00
0120,000 120,000 0.11
50.138 0.135
2 2 248,00
02.07
Pillowcas
es (P)
190,00
0180,000 180,000 0.5 0.55 95,000 0.53
a) Calculate material cost in basis period and analytical period:
Direct material cost in basis period:
MC0 = QB0 x UB0 x C0 + QP0 x UP0 x C0
= (120,000 x 2 x 0.115) + (190,000 x 0.5 x 0.115) = 38,525 (million VND)
Direct material cost in analytical period:
MC1= QB1 x UB1 x C1 + QP1 x UP1 x C1
= (248,000 + 95,000) x 0.135 = 46,305 (million VND)
b) Simple comparison:
ΔMC = MC1 - MC0
= 46,305 - 38,525 = 7,780 (million VND)
%ΔM
C= ΔMC/MC0 x 100
= (7,780/38,525) x 100 = 20.19%
It can be seen that the cost of direct materials increased by 7,780 million VND and the growth rate
was 20.19% compared to the plan. Increasing costs is not good and we will analyze in more detail the
impact of each element on the direct material cost by using continuous replacement method:
c) Continuous replacement:
- The influence of production levels:
ΔQ = (QB1 x UB0 x C0 + QP1 x UP0 x C0) - (QB0 x UB0 x C0 + QP0 x UP0 x C0)
= (120,000 x 2 x 0.115 + 180,000 x 0.5 x 0.115) - (120,000 x 2 x 0.115 +
190,000 x 0.5 x 0.115)
= -575 (million VND)
%Δ
Q= (ΔQ/MC0) x 100 = (-575/38,525) x 100 = -1.50%
Impact: The decrease of production levels makes material costs decrease by 575 million VND. It is
equivalent to a decline of 1.50%.
Cause: Obviously, not producing will not incur raw material costs. However, reducing costs in this way
is not a good idea because not producing also means no future profits. In this case, the reduced
production level is due to the urgent change request from the customer.
Solution: Depending on the company's circumstances and limiting factors, the managers may have
the following solutions:
Hire more workers to complete orders on time
Outsourced
Optimizing production processes
Most of the above methods increase costs. Thus, the managers must clearly define their goals as
optimizing profits, minimizing raw material costs, or maintaining contracts with customers (prioritizing
to fulfill customer needs) to offer appropriate solutions.
- The influence of material usage per unit:
ΔU = (QB1 x UB1 x C0 + QP1 x UP1 x C0) - (QB1 x UB0 x C0 + QP1 x UP0 x C0)
= (248,000 x 0.115 + 95,000 x 0.115) - (120,000 x 2 x 0.115 + 180,000 x 0.5 x
0.115)
= 1,495 (million VND)
%Δ
U= (ΔU/MC0) x 100 = (1,495/38,525) x 100 = 3.88%
Impact: The increase of material usage per pillowcase makes material costs increase by 1,495 million
VND. It is equivalent to a rise of 3.88%.
Cause: Unexpected request for an immediate design change to the pillowcases, which required 10%
more cotton than previously. The increase in material usage can also come from the production
process such as defective material, excessive waste, and errors in allocating material to jobs.
Solution: More effective use made of material, outsourcing, or subcontracting.
- The influence of material cost per m2:
ΔC = (QB1 x UB1 x C1 + QP1 x UP1 x C1) - (QB1 x UB1 x C0 + QP1 x UP1 x C0)
= (248,000 x 0.135 + 95,000 x 0.135) - (248,000 x 0.115 + 95,000 x 0.115)
= 6,860 (million VND)
%Δ
C= (ΔC/MC0) x 100 = (6,860/38,525) x 100 = 17.81%
Impact: The increase of material cost per m2 makes material cost increase by 6,860 million VND,
which is equivalent to 17.81%.
Cause: For objective reasons, the rise in material cost per m2 is due to the world commodity prices for
cotton increasing by 20% in July. This is a factor that the manager cannot control. When it comes to
subjective causes, it might be because of careless purchasing, the material standard price was
set too low, or do not take advantage of discount terms.
Solution: More care taken in purchasing, make use of discount terms or make fixed-price contracts
with suppliers.
- The total influence of all direct materials cost:
ΔM
C= ΔQ + ΔU + ΔC
= -575 + 1,495 + 6,860
= 7,780 (million VND)
The strongest influence comes from material cost per m2 by 6,860 million VND. In the future,
businesses need to analyze the signs of raw material price increase more closely to come up with an
appropriate response plan and optimize production to reduce material consumption. In addition,
businesses also need to build a suitable process to promptly deal with unexpected requests from
customers, in order to reduce the production delays (this is what makes businesses unable to
complete the production volume plan).
2) Performance of the production manager for the month of July
The production manager at Everon is responsible for all buying and any production issues which
occur, although he is not responsible for the setting of standard costs. Therefore:
The production manager is responsible for the difference between the actual figures and the
adjusted planned figures (different in operating):
ΔMC production manager = (QB1 x UB1 x C1 + QP1 x UP1 x C1) - (Q’B0 x U’B0 x C’0 + Q’P0 x U’P0 x C’0)
= (248,000 x 0.135 + 95,000 x 0.135) - (120,000 x 2 x 0.138 + 180,000 x 0.55 x 0.138)
= -477 (million VND)
The senior manager is responsible for the difference between the adjusted planned figures
and the planned figures (different in planning):
ΔMC senior manager = (Q’B0 x U’B0 x C’0 + Q’P0 x U’P0 x C’0) - (QB0 x UB0 x C0 + QP0 x UP0 x C0)
= (120,000 x 2 x 0.138 + 180,000 x 0.55 x 0.138) - (120,000 x 2 x 0.115 + 190,000 x 0.5
x 0.115)
= 8,257 (million VND)
- The influence of production levels:
The shortfall in the production of 10,000 pillowcases was caused by the customer’s request. The
production manager cannot control this element in this situation, hence the responsibility for all 575
million VND change in total material cost belongs to the senior manager.
- The influence of material usage per unit:
ΔU senior manager
=(Q’B0 x U’B0 x C0 + Q’P0 x U’P0 x C0) - (Q’B0 x UB0 x C0 + Q’P0 x UP0 x C0)
= (120,000 x 2 x 0.115 + 180,000 x 0.55 x 0.115) – (120,000 x 2 x 0.115 + 180,000 x 0.5 x 0.115)
= 1,053 (million VND)
ΔU production manager
=(QB1 x UB1 x C’0 + QP1 x UP1 x C’0) - (QB1 x U’B0 x C’0 + QP1 x U’P0 x C’0)
= (248,000 x 0.138 + 95,000 x 0.138) – (120,000 x 2 x 0.138 + 180,000 x 0.55 x 0.138)
=552 (million VND)
The result shows that in relation to material usage, the production manager only accounted for the
increase of 552 million VND in material cost. The production manager has reduced the material usage
per pillowcase, from 0.55 m2 in the adjusted plan to approximately 0.53 m2 in the actual. This is a
good change but it cannot offset the weakness of the production manager in controlling material
usage per bed sheet, the figure rose approximately by 0.07 m2.
- The influence of material cost per m2:
ΔC senior manager
= (Q’B0 x U’B0 x C’0 + Q’P0 x U’P0 x C’0) - (Q’B0 x U’B0 x C0 + Q’P0 x U’P0 x C0)
=(120,000 x 2 x 0.138 + 180,000 x 0.55 x 0. 138) – (120,000 x 2 x 0.115 + 180,000 x 0.55 x
0.115)
= 7,797 (million VND)