The Research On Cost Management Of JiLin JiGang Clean Energy Co. Ltd.

Jilin JiGang Clean Energy Co., Ltd. was established in May25,2012, registered at thecity of Song Yuan, Jilin province. It is a joint venture company, invested by China OilKunLun Energy (Hong Kong) Co., Ltd. and Jilin Oilfield Company. Company is mainlyengaged in production and sales of liquefied natural gas (LNG), compressed natural gas(CNG), pipeline gas, LNG, CNG refueling and transport, light hydrocarbon recoverybusiness. With the development and growth clean of energy market, the whole LNG industryis faced with great opportunities and challenges.Under the same conditions, the cost management is particularly important, whoever canproduce and sell at the lowest cost of LNG and further reflects the LNG price advantagecompared with gasoline and diesel can control the market, take market and play a greatpotential in the market, obtain the biggest profit space. This requires JiGang Company toestablish and improve a set of suitable for their own cost management system, where themaneuverability is strongly used to save costs.Ji Gang Company has a variety of features, ranging from a widely-distributed market,multi potential users, stable gas supply, major fluctuated gas price, multi basic productionunits, hard difficulty to manage costs to related multi professions and department, harddifficulty to coordinate and so forth. The current cost management situation of Ji GangCompany is not going well, basically following the Jilin Oilfield Company’s managementmode. From auditing of relevant departments to the end of the financial department entry inan account, basically there is no point in actual control. There exist many problems. First,without prior control of cost management, large deviation exists between unrealistic costestimates and cost decision, leaving the available cost plans can not be conducted well.Second, the accounting methods of basic production unit is currently used in Ji GangCompany’s cost management, that is to say, building the basic production unit in accord tothe contrast and then putting the cost into basic production unit. However, there arepossibilities of inaccuracy, inveracity, and disorder due to the related staff’s professionalskills and sense of responsibility. Third, no cost assessment and reward and punishment linkin cost management leads to a result that the cost management is just an idle talk, equivalentto a cost accounting, neither driving the employees to work enthusiastically nor advancingthe efficiency. Therefore, it is the top priority to establish the whole cost management system for JiGang Company to manage cost better, reduce more cost and achieve a greater profit margin.Cost management depending on mans’ will, is a dynamic long-term process, including costprojections, cost decision, cost planning, cost accounting, cost analysis, cost assessment,reward and punishment. Matching such cost management, the system should involvesub-systems of cost estimates, cost accounting, and cost analysis and cost assessment.Based on the current situation of the company’s cost management, this paper proposessome points for its cost management system.First, enhance cost estimate. Considering the cost of the previous year, the actualmarket situation and the forecast development and sales this year, budget cost estimates forthe year; according to changes in the market environment, adjust the budget at all times; setcost budgeting process; make cost estimate appraisal system and develop assessment rules.Then, cost accounting procedures should be set, which introduces Ji Gang Company’scost during producing and processing cost and expense. According to the company’sliquefaction plant total process, this procedure uses activity-based costing methods, dividingcost drivers into six areas, purification system, liquefaction system, transportation system,the refrigerant storage system, flare system and auxiliary systems to accumulate cost. Thefixed expense is taken directly into the cost not carried over to the six cost drivers, which candirectly manage controllable cost.Besides, strengthen the cost assessment and reward system. The role of cost assessmentis to evaluate the performance of responsibility centers, especially the cost center; to urgeresponsibility centers to control the cost; and to manage and reduce the production cost ofvarious products. According to the results of the cost assessment, the related personnel ofcost management are to be rewarded or punished.The way of weighted average is to be used to effectively avoid same score.Indeed, the establishment of a system is not so easy, which is a process to be improvedand bettered by constantly modified. It needs the guarantee of the company’s organizationand its system to make sure that the cost management system can really work well. There area few suggestions in the end of this paper.(A) The cost management system should begin from the basement layer. Theunderlying data is essential to reflect any management effectiveness. If errors firsthand, itwill cause a direct result of a certain bias.(B) Strengthen the enforcement of the cost management system. The cost management system alone does not work. It is easy to establish a institution. The key lies in theimplementation. In order not to make the system become a dead letter, the decision-makingand management must apply a tough attitude, not half-heartedly, implementing strictly inaccordance with the system.(C) Continuous modifications should be in the cost management system. Since Ji GangCompany markets are widely distributed, stations of its production and sales work everyday.As the saying goes,“learn by doing”. Problems are to be found only when the costmanagement system is under actual operation, therefore, it demands for timely detection ofproblems and timely modification. Modifications should be taken promptly, not in theyear-end summary. In this way, in the future, the same dilemma can be avoided and the costmanagement system will be better suitable for Ji Gang Company’s cost management.