Aggregating production cost and evaluating unit cost in huong giang construction company 1

Chapter two: Huong Giang company s accounting practices on aggregating ‘s accounting practices on aggregating production cost and evaluating product of construction unit cost.. Productio

Acknowledgment

As this is the first time I have written this piece of academic writing, this paperwould not have been completed without the assistance of several people I wouldlike to take this opportunity to acknowledge their contribution

My most heartfelt thanks must go to Prof Dr Dang Van Thanh who supervised me

in writing this thesis

I wish to express my special thanks to Mr Huyen – Chief accountant and all othermembers in the accounting department of Huong Giang construction company forproviding me information, material that makes up this thesis

My sincere thanks go to all the teachers at Accounting and Finance at PhuongDong University for their encouragement and reviewing the thesis

Finally, I am also deeply grateful to my family and friends for their support andsuggestions

Ha noi, 2003

Dang Thi Lan Anh

Introduction

Capital construction is one of the national economy s material production branch,’s material production branch,

that takes an important position in building infrastructure process for our country tocome toward socialism So each business must find out a management methodthat suits its characters of production and makes the highest economiceffectiveness as well

In market economy, almost the business trade for the profit goals Formanagement of company, production costs and unit cost are important economical

dang thi lan anh accounting and auditing

indices because they reflect level quality of production operation They effectdirectly to the whole business operation and take the major to enterprise s’s material production branch,

existence and development Therefore, the managers always try to find out thesolution to reduce production and unit cost to the minimum Only by aggregatingproduction cost and evaluating unit cost adequate, exact that help the managersanalyze the operation results Finally, they make suitable decisions onmanagement in order to enhance the production and management mechanismorganization

Realizing the importance of operation production cost and unit cost in general,specially in Huong Giang construction company where I did my graduationtraining, I have come to decision to make the scope of this thesis:

“Aggregating production cost and evaluating unit cost in Huong Giang construction company”.

The thesis includes three main chapters as follows:

Chapter one: General theory of aggregating production cost and evaluating unit

cost in construction companies

Chapter two: Huong Giang company s accounting practices on aggregating ‘s accounting practices on aggregating

production cost and evaluating product of construction unit cost

Chapter three: Solutions to perfect the quality of operation production cost and

unit cost accounting in Huong Giang company

Chapter oneGeneral theories of aggregating production costs and evaluating unit cost in construction companies.

In this chapter, theory on accounting for aggregating production costs andevaluating unit cost will be discussed It includes major issues as follows:

 Concept of production costs and unit cost, classification and relationshipbetween production costs and unit cost

The tenor of aggregating production costs

Estimation of work in progress

Method of evaluating unit cost

1 Production cost and classification of production costs in construction company:

1.1 Definition:

Production costs represent the moneytary value of resourses used such as labourmaterials, overhead incurred in production process that form the product ofconstruction unit cost in a given period of time

1.2 Classification:

Production costs can be classified in many ways depending on goals andrequirements of management

In calculating, there are some ways to classify production costs on the basis of:

1.2.1 Classification of production costs on the basis of economic content and nature of costs.

According to this classification, production costs in construction company arefuther divided into these components:

 Raw materials cost

 Tools and supplies cost

 Fuel and oil cost

 Labour cost

 Depreciation of fixed assets

 Render – services

 Other expenses in cash

This classification shows the structure and percentage of each cost component It

is the basis of making production costs statements following elements and theplan of production costs for next period

1.2.2 Classification of production costs on the basis of purpose and utility of costs

According to this classification, the same goal and utility costs are gathered in onecomponent, it does not distinguish economic content of costs Production costsinclude these categories as follows:

 Direct raw – materials cost

 Direct labour cost

 Equipment cost

 Overhead costs

This classification is useful for the company to communicate the data to evaluateunit cost, analyze the implementation of planned unit cost and making productioncosts estimation for next period

1.2.3 Classification of production costs on the basis of method of aggregating production costs:

Under this classification, production costs are divided into two categories:

 Unique costs can be traced directly to specific product

 General costs are expenses that relating to many products They are need toseparately aggregate to periodical allocate for costs center

This classification helps the managers realize position of each costs in makingproducts to set up suitable method of aggregating production costs

2 Unit cost of construction product and classification of unit cost:

2.1 Definition:

Unit cost includes all the production costs that a company has to pay to build afinished construction

Unit cost of construction product includes four components such as:

 Direct raw – materials cost

 Direct labour cost

dang thi lan anh accounting and auditing

 Using equipment cost

 Factory overhead costs

2.2.1 Cost price of construction work:

Cost price of construction work includes all the production costs to finish volume

of construction following the estimate

Or :

Cost price of construction work is formed and existed in a given time It s’s material production branch,

evaluated in medium conditions of construction production, managementorganization, materials and labour expenses for each kind of work or for aspecific work Cost price of construction work is sequently stability

2.2.2 Planned unit cost:

Planned unit cost is evaluated on the basis of specific conditions features of oneconstruction company in a given planned period

Therefore, planned unit cost is an index that business try to reach in order toachieve the profit level thanks to decreasing unit cost in planned period It reflectsthe standard of company s unit cost management.‘s accounting practices on aggregating

2.2.3 Assessed unit cost:

Assessed unit cost is the total expenses that cost to end a volume of construction

It is calculated on the basis of structural feature, method of building organization

x

Unit price is announced

by Government for eachconstruction area andother normed costs

Planned

unit cost = priceCost - decreasing unit costProfit base on +(-) Difference from

estimate

2.2.4 Actual unit cost:

Actual unit cost is the total costs incurred in construction process that isaggregated by accountant

The basic difference between actual unit cost with the above unit cost: Structure ofthese above unit cost only include normed costs but actual unit cost includes allcosts incurred that means covering normed costs and extra costs

In short, in order to determine accurately the quality of construction operation, it isneed to compare those unit costs

 Comparing actual unit cost with planned unit cost shows the decreasing level

of planned unit cost

 Comparing actual unit cost with estimation of unit cost reflects theaccumulation index to expect the company ability in next period

 Comparing actual unit cost with assessed unit cost shows the finished normslevel of each specific volume of construction

3 The relationship between production costs and unit cost.

Production costs and unit cost are two different terms of production process.Production costs reflect the moneytary value that company cost in process andunit cost reflects the results of production

All the expenses create (on this period or transferred from previous period) andprecalculating costs that relate to volume of finished work will form the unit cost ofconstruction product

Thus, production costs and unit cost have closed relationship Production costsare the base to evaluate unit cost of finished products Saving or wasting ofproduction costs effect directly to increasing or decreasing of unit cost Finally,management of unit cost must be linked to production costs management

The scheme of relationship between production costs and unit cost:

4 The objects and method of aggregating production costs:

4.1 The objects of aggregating production costs in accounting:

The objects of aggregating production costs are defined as scale and scope ofcosts which accountant has to aggregate to satisfy the requirements of checkingand supervising the costs in building process

dang thi lan anh accounting and auditing

Costs in progress at the beginning Costs create in process

Total of unit cost of finished products Costs in process at the ending

Total of unit cost of

finished products = Costs in progressat the beginning + Costs createin progress - Costs in processat the ending

In order to accurately determine costs objective, accountant has to base onfeatures of production costs and the use of cost in production.

 The objects of aggregating production costs may be the whole technologicalprocess or each specific stage fluctuation to production mechanismorganization, requirement and standard of economic management andinternal accounting requirements

 Following production process, product characters, the requirement ofevaluating unit cost, the costs objective may be each group of products oreach kind of products, or each component or details group, detail of product

In construction, product is specific so that the objects of aggregating productioncosts may be the customer s order, each construction, part of building or group of’s material production branch,

buildings, as usual

Aggregating production costs to adequate objects gives a good assistance toproduction costs and manufacture administration, to internal and the wholeaccounting of company Besides, it helps timely and accurately evaluating unitcost

4.2 Aggregating production costs method:

4.2.1 Aggregating and allocating direct raw materials cost:

Direct raw materials costs are costs of major materials, semi – finished product,auxiliary materials, fuel oil used directly in manufacturing products

Direct raw materials costs are usually aggregated following direct method It isapplied for direct raw materials costs that are only concerned in only one costobjective

If direct raw materials costs are concerned in many objects of aggregatingproduction costs, accountant has to use indirect method That means accountanthas to determine the reasonable bases to allocate direct raw materials costs byfollowing formula:

To accurately aggregate direct raw materials costs, accountant has to payattention to checking and evaluating the received materials but not using up andvalue of received spent materials to minus them out of direct raw materials costs

According to Financial Regulation issued by Ministry of Finance, in order toaggregate and allocate direct raw materials costs, account 621- Direct raw“

materials is used.”

Costs

allocate to

object i =

Total costs to be allocated

General criterion of allocation of all objects

x criterion ofGeneralallocation

-The unused materialsdistributed formanufacturing are returned

and stored

-Value ofreceivedspentmaterials

Chart 01: Direct raw materials costs accounting

No ending balance exists in A/C 621

4.2.2 Aggregating and allocating direct labour cost:

Direct labour costs are salaries payable to employees directly involved inmanufacturing Salaries includes basic wages, allowances, not includes socialinsurance (15%), trade union fees (2%), health insurance (2%)

Direct labour costs are usually computed directly to each relating costs objective Ifdirect labour costs involve in many objects that are not calculated directly, theycould be general aggregated and allocated to costs objective by reasonablebases, at the ending of accounting period

The common allocation bases are used such as assessed salary (or planned),assessed hours wage or actual hours wage, volume of products following theconcretely condition

According to Financial Regulation issued by Ministry of Finance, in order toaggregate and allocate direct labour costs, A/C 622- Direct labour costs is“ ”

used It can be opened sub – accounts depending on the features of operatingactivities

Chart 02 : Direct labour costs accounting

No ending balance in A/C 622

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Raw materials are not stored

and used immediately for producing products

Payable expenses for labour

costs on day leave’s material production branch,

4.2.3 Aggregating and allocating factory overhead costs:

Factory overhead costs are general operating expenses supporting the process ofproducing created at construction brigades such as expenses for factoryemployees, the costs of tools, supplies utilised for factory, depreciation of fixedassets, expenses for services rendered and expenses paid in cash It alsoincludes trade union fees, social insurance, health insurance deducted from wages

of direct labour, construction machinery operator and management staff

Factory overhead costs are aggregated at each place At the end of month,aggregated overhead costs are transferred to evaluate unit cost

Factory overhead costs of which brigades will be transferred to that brigade toevaluate unit cost of its product If one brigade produces many products in theperiod, factory overhead costs will be allocated to each costs objective Factoryoverhead costs can be allocated on the basis of:

 Actual hours wage of worker

 Direct materials costs

 Direct materials and labour costs

 Assessment of factory overhead costs

It can be allocated according to the formula:

According to Financial Regulation issued by Ministry of Finance, in order toaggregate and allocate factory overhead costs, A/C 627 – Factory overhead“

costs is used Accountants may open some sub- account to record specific”

expenses for their own operations

In addition, upon the Directive 89/2002/TT-BTC: Guidung accountants to practicefour Vietnamese accounting standards issued following Decision 149/2001/QD-BTC dated December 31/2001 of Minister of Finance, Ministry of financesupplements account 242 – Long term prepaid cost This account used to“ ”

record expenses which relate to several fiscal periods and they therefore can not

be charged wholly to the current period but should be allocated to the periods inwhich they relate

Chart 03 : Factory overhead costs accounting

Volume of factory

overhead costs are

allocated to each

cost objective =

General criterion of allocation of all objects

General criterion of allocation of each object

x

Total factory overhead costs must

be allocated

No ending balance in A/C 627

4.2.4 Aggregating and allocating machinery cost:

Equipment costs includes two types:

 Temporary costs are one time incurred costs that relating toassembling, removaling, carriage machines and others for temporaryconstructions supporting for using equipment

This kind of costs are allocated following the using time of temporary constructions

or construction period at building site (which is shorter will be choosed to beallocation base) Calculating the monthly volume of allocation as follows:

dang thi lan anh accounting and auditing

Salaries , allowances payable

to factory employees and social insurance , health insurance , trade union fees for

worker , machinery operator and factory employees A/C 152

Materials costs A/C 153

Tools are used with low value

A/C 142,242 Tools with

high value

The first allocation A/C 111,141,331

Expenses rendered and others in cash A/C 241(3)

Depreciation of fixed assets Increased depreciation level because of fluctuation of depreciation method or time A/C 241

Repairing and upgrading fixed

assets with short value that not satisfied the condition of recording increased cost

-Estimated recoverable value of spent materials

Temporary costs are also calculated by preseting aside into equipment costs.When ended using temporary constructions, the differences between actualincurred cost with preset aside costs are recognized as regulations.

 Regular costs include daily incurred for using machines process such as: fuel ,oil costs, other auxiliary materials costs, salaries of machinery operators,depreciation of fixed assets, rendered machines costs These expenses arecomputed one time to equipment costs in period

4.2.4.1 Company has organized separate equipment brigades with accountingclassifications These brigades have their own accounting work

a If company practice by method of supply equipment services among internalsections, the accounting chart as follows: (Chart 04)

b If company practice by method of purchase equipment services among internalsections:

4.2.4.2 Company has not organized separate equipment brigade or organzied butnot graded them:

Transferring costs to evaluate unit cost

Allocating equipment costs

to objects

Actual price of purchased Machines shift

A/C 512

A/C 333(1)

A/C 623

A/C 133(1)

1 1

* Equipment costs are allocated to reasonable construction objects basing onvolume of machines shift or actual served work

 In case that using equipment cost are particularly accounted to each kind ofmachines be allocated to each object :

 If company does not account specific to each kind of machine, accountantshave to evaluate standard machines shift through reduction factor:

4.2.5 Aggregating production costs accounting:

Production costs are needed to transfer in order to aggregate the whole operationexpenses and detailed in each object after particularly accounting for eachcomponent such as: direct raw materials costs, direct labour costs, usingequipment costs, factory overhead costs

dang thi lan anh accounting and auditing

Total equipment costs must be allocated

Total actual machines shift or implementation volume of building

x

Volume of actual machines shift or volume of work are served for each object by machine

H = Planned price of one machines shift

Planned price of lowest one machines shift

Standard machines shift

of each operated kind

= operated machines shiftVolume of actual

Total equipment costs must be allocated

Total reducted standard machines shift of all machines

x

Reducted machines shift serving for each object

Accountants depend on aggregating production costs by using perpetual inventorymethod or periodical inventory method to use accounts.

 If company applies perpetual inventory method, accountants use account 154– Work in progress to aggregate production costs.“ ”

Chart 05.1 : Aggregating production costs

( Perpetual inventory method )

 If company applies periodical inventory method, accountants use account 631

to aggregate production costs, account 154 is only used to reflect the value ofwork in progress at the end of the period

Transferring direct labour costs

Transferring factory overhead costs

Transferring equipment costs

A/C 152

Unused raw materials are returned and stored

A/C 138 Reiceivable reimburse

A/C 336(2)

Actual price of finished construction products hand over to main contractor

1 3

Chart 05.2: Aggregating production costs

(Periodical inventory method )

5 Estimation of work in progress:

Work in progress of construction company include construction are in building,volume of work are not accepted to pay by contractor

Accountants have to evaluate actual unit cost of finished product in accountingperiod following formula:

In order to evaluate value of work in progress at the ending, we must estimateexactly the volume of work in progress, determine the finished level and use thereasonable to evaluate

There are many ways to evaluate work in progress on the basis of handing overmethod between contractor and construction brigades

5.1 In case that handing over when construction is whole finished:

Under this case, the sum of production costs from the beginning of building to thetime of estimate are actual costs of work in progress

It always applies for correction and finishing work, low value constructionsbuilding, short construction period following the contract that are accepted to paywhen whole finishing by contractor

5.2 In case that handing over as each finished stage:

Work in progress are unfinished construction stages Evaluating costs of work inprogress at the ending of the accounting period by allocating actual costs It is onthe basis of cost price and degree of finishing

dang thi lan anh accounting and auditing

Transferring the value of work in progress at the ending of the period

A/C 621,622,623,627

Transferring direct raw materials costs , direct labour costs , factory overhead costs ,

of the period +

Production costs arising

in accounting

-Value of work in progress at the ending

Cost price of work in progress

of eacs stage at the ending = Cost price of

each stage x Percentage finished of

+ Costs in the period

+ Total cost price of all stage

unfinished products

5.3 In case that handing over as periodical finished product of each work or each structural part:

Calculating actual costs of volume of unfinished products at the ending by formula

as follows:

6 The objects and the method of evaluating unit cost.

6.1 The objects of evaluating unit cost:

The objects of evaluating unit cost are products, works which are manufactured byenterprise

In construction activity, because each product has its own estimation and design,

so the objects of evaluating construction unit cost are construction, or volume offinished product

* The objects of aggregating production costs are usually equal to the objects ofevaluating unit cost, in capital construction

The costs objective are the constructions followed customer s order, and the’s material production branch,

objects of evaluating unit cost are finished products

6.2 Evaluating unit cost period in capital construction:

Due to products of construction are manufactured following each order with longcycle, construction is only finished when ending a production cycle, so evaluatingunit cost period usually choosed is the time of handing over finished constructions

to use

Therefore, evaluating unit cost period may be not suitable with accounting period ,

it is suitable with production cycle

6.3 The method of evaluating unit cost:

Cost price of each

unfinished product = Volume of unfinishedproducts x Estimatedunit cost x Percentagefinished

Costs of work in progress

at the beginning + Costs in the period

Cost price of volume of finished product handing over in the period +

Total cost price of volume of unfinished products

x

Cost price of unfinished product at the ending

1 5

The method of evaluating unit cost is method of using aggregated production costsdata and other relating data to calculate total unit cost and unit cost of finishedproduct on the basis of determined objects

In construction company, methods are usually applied such as follows:

6.3.1 Evaluating unit cost by simple method :

This method is applied in case that the objects of evaluating unit cost and costsobjective are the same, the evaluating unit cost period is suitable with accountingperiod

According to this method, unit cost is evaluated by formula:

6.3.2 Evaluating unit cost by grand total costs:

This method is applied in case that company builds high value constructions,production costs are aggregated following each brigade and unit cost is evaluated

to each finished product

Unit cost is evaluated by formula:

6.3.3 Estimating unit cost in comformity with customer’s order:

It is the popular method

According to this method, costs objective and the objects of evaluating unit costare customer s orders However, in order to satisfy the requirements of work and’s material production branch,

because they have their different own estimation so actual unit cost of eachconstruction is calculated by formula:

6.3.4 Evaluating unit cost by assessment method:

This method is applied when company had computed assessed unit cost of eachconstruction following each component of unit cost

Accountants aggregate actual production costs by each component to comparewith assessed costs and to evaluate unit cost by formula:

dang thi lan anh accounting and auditing

Unit

cost = Costs of work inprogress at the

beginning + Production costsincurred in the

period - Costs of work inprogress at the

ending

Unit

cost = Costs of workin progress at

the beginning + The sum of productioncosts of brigades that

construct a building - Costs of workin progress at

the ending

Actual unit

cost = Cost price ofconstruction x

Total production costs aggregated in the period

Total cost price of constructions

Actual total

unit cost = Assessed totalunit cost +(-) Differences fromassessment +(-) differencesJustified

6.3.5 Evaluating unit cost by coefficient and percentage method:

This method is applied when costs objective are group of same kind products orthe whole production process Object of evaluating unit cost is each finishedproduct made by this process

Unit cost of standard product = Total unit cost of all kind of products

Total of reducted standard product

Unit cost of each

kind of product = Unit cost of

standard product x Reduction factor

of each kind

Total of reducted

standard product = The sum of Volume ofproduct i x Reduction factor

of product i

1 7

Chapter II

Accounting practices on aggregating production costs

And evaluating unit cost in Huong Giang construction company.

In this section, we are going to look at the following issues related to the HuongGiang company:

 Foundation history

 Production and management organization

 Accounting work and accounting mechanism organization

1 Production and business management organization:

1.1 Foundation history of Huong Giang construction company:

Huong Giang construction company – Ministry of National Defense wasestablished under the decision 501/QD-QP dated 18/04/1996 by the Minister ofNational Defense, on the basis of incorporation of two enterprises: Constructionenterprise 17/5 and Coal exploit enterprises 30/4.The headquarter of company islocated at A7, Tan Mai – Hai Ba Trung – Ha Noi

Huong Giang company is a State owned enterprise It has a number of capital asfollows: 7.315.116.041 VND

It devides into: - Fixed capital : 5.323.330.443 VND

- Current capital : 1.991.785.598 VND And includes:

- Amounts granted by the Ministry of National Defense : 2.069.076.220 VND

- Amounts granted by the National budget : 1.200.000.000 VND

- Amounts undistributed earnings : 950.423.721 VND Over the past years, company has tried its best to complete the duties Companyhas achieved high production results, increase business surplus and step by stepexpand its capital At present, the company s market is all over the nationwide ’s material production branch,

The company s growth and development in recent years are presented in’s material production branch,

following table:

Some indexes reflect practices for producing and business of company

1.2 Production and management organization:

1.2.1 Feature of technology production process:

dang thi lan anh accounting and auditing

The major products of Huong Giang construction company are constructions,construction items such as: civil works, industrial buildings, water communicationworks, bridgeworks The construction scale is not the same, products arespecific, and long constructional duration Besides, the construction procedures ofcompany are taken at different places and they are delivered to the location ofproducts

Because of the feature of construction capital, so the company s brigades are’s material production branch,

independent and distributed to many provinces and cities in all over the country Iteffect directly to the company s production management work Next to the’s material production branch,

influence of construction product characters, it also is effected by technologyproduction process Construction practices of company may be devided into sixstages as follows:

Building bidding

Making construction estimate

Building

Handing over finished works

Making balance sheet of finished works

1 9

1.2.2 Production and business machanism organization:

At present, Huong Giang company has twelve construction brigades, they areunder the controlling of company Management mechanism of company isorganized in accordance withf join - direct line function model

 Organization and Administration division:

This division is in charge of labour selection, labour organization for brigades.Besides, it is also responsible for adminitrative work, establish the labourdocuments and the standard of salaries, allowances

 Technical – planning division:

This division is in charge of technical management in construction, in detailed asfollows:

o They make the construction schedule, the estimate, technical supervisonwhen the company bids a construction And they have to be responsible forconstructional work quality

o Managing tools and making bills of price of tools

 Accounting and Financial division:

This division is responsible for recording, analyzing and communicating theaccounting information to Director Board in making economical decisions

 Materials and machines division:

This division is in charge of ensuring materials, machines, equipment for theconstruction requirements of each brigades

 Building brigades:

The main duties of construction brigades are construction, assuring the scheduleand quality of works

1.3 Accounting mechanism organization:

In order to meet the production and business features and make full advantages ofability accountants, the accounting apparatus is organized to follow model of bothconcentration and division

 Statistic accountants at construction brigades: They specialize in orginalcounting, treating and checking accounting vouches and then periodicalsending them to Accounting division of company

 Company s accountants make records of transactions performed by company’s material production branch,

and brigades, sums – up statements of brigades to make the company s’s material production branch,

general statements of account

At present, each accountants is responsible for his / her task:

dang thi lan anh accounting and auditing

o Chief – accountant is responsible for the whole work of accounting, economicinformation and system of the company He is also an assistant to the director

in the business activities and responsible for all of the accountingorganizations in the company

o Accountant of general works and fixed assets is responsible for aggregatingthe whole operation costs, recording the movement of fixed assets and makeits allocation table, open the detailed books and making statements tocompany s regulations.’s material production branch,

o Accountant of banking and materials is responsible for recording transactions

of materials movement and the balance, the movement of cash in banks.Besides, he is also in charge of opening Book for recording materials and“ ”

making the statements determined by Bank

o Accountant of salary and insurance is responsible for calculating bonuses,social insurance, health insurance and payable to the employee

o Cashier is in charge of paying cash and making daily cash balance table aswell as keeping cash fund of company

Chart of accounting mechanism organization at Huong Giang company.

1.4 Accounting policy applied in company:

1.4.1 Accounting work:

At present, company uses system of account for enterprises issued under the“ ”

decision No.1141 TC/CDKT dated October 1st 1995 of Minister of Finance.Accounting method on inventories is perpetual method

Accountant

of salaryandinsurance

Cashier

Accountants of construction brigades

2 1

1.4.2 The accounting book system:

In order to suit small – scale production, few accountants and specialization ofaccounting mechanism, Journal Ledger is the form of book used in the accountingdivision of Huong Giang company

Accounting books is applied at company:

 The general accounting book: Journal Ledger

 The subsidiary ledger cards

Procedures for recording transactions into journal ledger.

2 Aggregating production costs and evaluating unit cost in Huong Giang construction company.

2.1 The objects and the method of aggregating production costs:

At company present, company has bided and then giving to construction brigades

to build Company applies two types of task – work:

 Straight task – work

 Three elements task – work: Raw materials costs, labour costs, factoryoverhead costs

dang thi lan anh accounting and auditing

Original documents

Originaldocuments listing Ledger CardsSubsidiaryCash book

detailed reports

Financial Statements

Note :

Daily recordingMonth end recordingReconciling, checking

The objects of aggregating production costs of company are constructions ,construction items or customer s orders.’s material production branch,

 For products of construction, aggregating production costs are on the basis ofproduction costs of each construction incurred are traced to this construction

 For customer s orders, the whole costs relating to construction are’s material production branch,

aggregated for each order

Company uses the direct aggregation production costs method, that meansproduction costs relating to which object are aggregated to this object For thecosts are not direct aggregated because they involve in many costs objective, atthe end of accounting period, accountants must allocate production costs followedthe reasonable bases such as: assessed materials, assessed direct labour costs,output percentage, value estimate

2.2 The objects of evaluating unit cost:

The objects of evaluating unit cost of Huong Giang company are finished products

So actual unit cost of finished product is the whole costs incurred that relatingdirectly to this construction or this construction item during the construction period.For work parts need to calculate the actual unit cost, the objects of computing unitcost are each specific structure part with its own estimation and it reaches to thereasonable stop point followed the contract s regulations In order to evaluate unit’s material production branch,

cost of this object, we must determine the work in progress Huong Giangcompany determines the value of work in progress are the whole costs for partsthat don t reach to the stop point.’s material production branch,

2.3 Classification and management of production costs:

In order to manage effectively production costs and calculate accurately unit cost,analyzing the influence of each element cost in unit cost is so important

Before building, any construction must be made the estimation of technical design

in order to examine by the leaders Besides, this estimation is the base of makingeconomic contract

The estimates are made for each construction and analyzed following each costscomponent So it is able to compare and check the implementation of costscomponents with the estimate and it make advantages on analyzing theproduction results Production costs of company are classified on the basis ofpurpose ans utility of costs They includes:

 Direct raw – materials costs

 Direct labour costs

 Equipment costs

 Factory overhead costs

2.4 Aggregating production costs in Huong Giang company:

2.4.1 Accounting system used in the company:

2 3

The major accounts used in aggregating production costs of Huong Giangcompany are A/C 621, A/C 622, A/C 623, A/C 627 These accounts are detailedaccording to each specific construction

2.4.2 Aggregating production costs in Huong Giang construction company:

The following object of aggregating production costs and evaluating unit cost isconstruction N18 – Political Institute

2.4.2.1 Aggregating direct raw – materials costs:

In Huong Giang company, raw – materials costs include all the value of materialsneeded to construct a finished construction

Huong Giang company is applied the task – work method to construction brigadesand so the materials used for construction do

In order to savely and fully use materials, construction brigades make monthly theplan of buying materials on the basis of assessement and the volume of building.The staff of providing makes the Advance request (supplement 1) and transfer“ ”

to the managers in order to examine and grant capital

Bases on the plan of buying materials, bill of materials price, and the advancerequest transferred by construction brigades, the manager signs to supply theadvance for brigades

Accountant makes the payment voucher on the basis of advance request Whenchief accountant and director had signed the payment voucher, cashier makesamount of money as the amount in voucher The advance request is the base ofrecording in to detailed books of A/C 111, A/C 141

When inventory arrived, storekeeper with master and supplying staff examine thequantity and the quality of materials After that, storekeeper makes Goods“

receipt note” (supplement 2) Storekeeper makes Goods delivery note“ ”

(supplement 3) when raw materials, tools and supplies are put in construction.Cost of inventory used for construction is computed by actual cost The actual cost

of inventory includes price on purchase invoice and transportation charges ,handling expenses On the basis of Goods delivery note , accountants “ ” of brigaderecord to the Raw materials delivery voucher collection table (supplement 4).“ ”

At the end of month, brigade accountant compares the accounts on Goodsdelivery note with Raw materials delivery voucher collection table Then he / shesends them and other relating vouchers to Accounting and Financial division.Accountant of production costs makes the Raw materials cost collection table “ ”

(supplement 5) basing on received vouchers These vouchers are the base ofrecording transactions into Subsidiary ledger A/C 621 (supplement 6) and“ ”

Journal Ledger When the data of raw materials costs collection table and the data

of subsidiary ledger A/C 621 are the same, accountant transferrers direct rawmaterials costs from A/C 621 to A/C 154

2.4.2.2 Aggregating direct labour costs:

dang thi lan anh accounting and auditing

In Huong Giang company, direct labour cost includes salary, bonuses, andallowances of employees who directly involve in construction process Directlabour cost does not include social insurance, health insurance, trade union fees

of direct employees and salary as well as social insurance, health insurance,trade union fees of machines operators

In addition, company also uses a lot of rent employees Company gives this labourforce to master of construction brigades whom are responsible for payment tothem following the rental contract Total of payment to the rent employees arecredited to A/C 334 (detailed: Payable to rent employees) and the salary ofcompany s employees are credited to A/C 334 (detailed: Payable to employee).’s material production branch,

Huong Giang company applies two payment methods:

 Payment following product: This method is applied for the labour force whodirectly involve in construction

 Payment following time: It is applied for the indirect staff in company, indirectmanagement section at brigades and other employees at work camp

Salary per month = The basis salary level x Coefficient

Daily salary = Salary per month / 26

** After received construction from company, the master gives each part of work toeach brigade through –Lump- sump contract– (supplement 20) The head ofbrigades record daily in the –Time – sheet– for each worker (supplement 7).When closing the lump – sump contract, technical staff and the head of workcamp examine the quantity and the quality of works If the contract is not closeduntill the end of month, the technical staff will determine the finished works in thismonth and take it as the base of caculating salary for workers

Accountant makes the –Payroll– (supplement 21) on the basis of lump – sumpcontract and time sheet, at the end of month Accountant calculates salary byfollowing formula:

** For the rent workers: After aggreeing unit price, the master signs the –Rentalcontract– with the head of them (supplement 8) When finishing, the master andthe technical staff examine and accept to pay followed the agreed volume and theunit price

** At the end of month, brigades accountants gather the vouchers that relate tolabour cost and send them to Accounting and Financial division in company.Accountant of company makes the –Salary allocation table– (supplement 9).Base on these vouchers, accountant record to –Subsidiary ledger A/C 622–(supplement 10), –Subsidiary ledger A/C 154– and Journal Ledger After

Salary following product = Unit price of task work x Actual volume of construction

of per person

2 5

comparing, accountant transfers the direct labour cost of each construction to A/C154

2.4.2.3 Aggregating equipment costs:

Equipment costs of company include depreciation of construction machinery cost,salary of machines operators, fuel oil cost, machines repair cost This component

is detailed in each construction

Company applies –Operation journal of construction machinery– to determineaccurately the equipment cost to each object Accountant at brigade makes theoperation voucher of machines to each construction, and sends them toAccounting and Finance division at the end of month

 As usual, company rends both of machines and operator The whole costsare not reflected to equipment costs (A/C 623), but reflected to Render – services(A/C 627) Accountant of production costs of company makes the –Equipmentcosts allocation table– (supplement 11) on the basis of rental machinery contractand operation voucher of machines

Equipment costs are allocated by following formula:

The construction machinery of N18 – Political Institute are belong to the company

So the whole costs of machines are recorded as follows:

 Fuel oil costs to operate machines: Brigades construction purchase fuel and oil

by advance And then recording following the principle of recording to direct object,that means costs created by any work camp or any machines are recorded to thiswork camp or this machine Accountant of brigades making daily the –Fuel and oildelivery voucher collection table for machinery operation– (supplement 12) on thebasis of original vouchers At the end of month, brigade accountant gathersvouchers related to fuel and oil costs to transfer to Accounting and Financialdivision in order to record to subsidiary ledger A/C 623 and Journal Ledgers

 Machinery operators cost: The initial vouchers are the time sheet, operationjournal of construction machinery, and the lump – sump contracts The masterrecords daily in time sheet for each operator Brigade accountant calculates salaryfor machinery operators when closing the lump – sump contract

Accountant of salary makes the –Payroll– for machinery operators on the basis ofvouchers transferred by brigade accountant Base on this table, accountant ofproduction costs transfers the machinery operators cost to A/C 154 and records toJournal Ledgers

dang thi lan anh accounting and auditing

A machine

cost allocated

to B

construction =

Rental cost of A machine of month

Total of actual A machine shift of month

x

Total of actual

A machine shiftserved forconstruction B

 Depreciation of construction machinery cost: Depreciation of constructionmachinery of company are under the Decision 1062/TC/QD/CSTC These costsare record directly one time into equipment costs for each construction(supplement 22).

In order to estimate depreciation of fixed assets cost, the straight – linedepreciation method is used for all fixed assets in the company According to thismethod, depreciation cost of each month is estimated by following formula:

Monthly, basing on the original vouchers , accountant at brigades make the–Equipment costs collection table– (supplement 13) And accountant at companymakes the –Depreciation of fixed assets allocation table– for constructions onmonth and records to –Subsidiary ledger A/C 623– (supplement 14),–Subsidiaryledger A/C 154–, Journal Ledgers

2.4.2.4 Aggregating factory overhead costs:

In company, factory overhead costs are accumulated according to major items asfollows:

 Salary of brigade s management staffs and social insurance, health’s material production branch,

insurance of management staffs, direct labour, machinery operators Daily,brigade s accountant mark in the Time sheet and base on working time recording’s material production branch,

sheet to calculate management staffs cost And then, he / she makes the–Payroll– for management staffs (supplement 15)

 Tools and supplies costs: In company, tools and supplies include protectiveclothes, picks, shovels, scaffoldings with low value , they are allocated one timeinto factory overhead cost And high value scaffoldings are recorded to accountfixed assets and determined depreciation following the time using for eachconstruction At the end of month, brigade s accountant makes the Tools’s material production branch, “

delivery voucher collection table– (supplement 16) to transfer to Accounting andFinancial division of company

 Depreciation of fixed assets costs: It includes depreciation of houses, ware –house at brigades Monthly, accountant of fixed assets calculates thedepreciation as the above formula

According to –Fixed assets depreciation allocation table–, the depreciation offixed assets of construction N18 in October – Year 2002 is: 4.233.000 VND

 Services rendered costs and others paid in cash: Brigades accountant recorddaily to –Factory overhead costs collection table– (supplement 17) on the basis ofinvoice, payment voucher, and other vouchers At the end of month, Accountant ofproduction costs allocates the factory overhead cost to evaluate the unit cost ofeach construction on the basis of vouchers transferred by brigades

Factory overhead costs are allocated by following formula:

2 7

In October, brigade 8 only constructs the construction N18, so factory overheadcosts are aggregated directly to this construction

After allocating factory overhead costs, company s accountant records to’s material production branch,

–Subsidiary ledger A/C 627– (supplement 18), –Subsidiary ledger A/C 154–,Journal Ledger

2.4.3 Aggregating production costs:

In the company, accounting method is perpetual inventory one (described inchapter I) As a result, all costs which concern with production process aretransferred to debit side of A/C 154 to evaluate unit cost (supplement 19)

Then, accountant makes the –Production costs collection table of eachconstruction– (supplement 23) and –Production costs collection table in October–(supplement 24)

2.5 Estimating of work in progress:

In the company, the objects of work in progress estimate are constructions whichare not handed over

At the end of year, the representative of Technical division, the construction s’s material production branch,

technician and the construction manager estimate the work in progress Afterreceiving the –Work in progress physical count report– transferred by Technicaldivision, the Accounting and Financial determine the actual cost of work inprogress by following formula:

The construction N18 – Political Institute has finished in year 2002, so it has notgot work in progress

2.6 Evaluating unit cost in Huong Giang construction company:

In company, period of evaluating unit cost is the end of accounting period If there

is finished product in month, company will examine and hand over as usual.Accounting division compute the actual unit cost is the whole production costsincurred in construction procedure

At the end of year, accountants calculate the unit cost of each finishedconstruction and determine the result of construction in this year

In order to keep with method of aggregating production costs, method ofevaluating unit cost used is simple method (direct method)

dang thi lan anh accounting and auditing

The major salary of direct labour

of all constructions

x

Salary ofdirect labour

of eachconstruction

Cost of work in progress

at the beginning + Costs incurred in

the period

x

Volume of unfinished product at the ending