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

Capital construction is one of the national economy’s material production branch, that takes an important position in building infrastructure process for our country to come toward socialism. So each business must find out a management method that suits its characters of production and makes the highest economic effectiveness as well. In market economy, almost the business trade for the profit goals. For management of company, production costs and unit cost are important economical indices because they reflect level quality of production operation. They effect directly to the whole business operation and take the major to enterprise’s existence and development. Therefore, the managers always try to find out the solution to reduce production and unit cost to the minimum. Only by aggregating production cost and evaluating unit cost adequate, exact that help the managers analyze the operation results. Finally, they make suitable decisions on management in order to enhance the production and management mechanism organization. Realizing the importance of operation production cost and unit cost in general, specially in Huong Giang construction company where I did my graduation training, I have come to decision to make the scope of this thesis: “Aggregating production cost and evaluating unit cost in Huong Giang construction company”.

As this is the first time I have written this piece of academic writing, thispaper would not have been completed without the assistance of severalpeople I would like to take this opportunity to acknowledge theircontribution

My most heartfelt thanks must go to Prof Dr Dang Van Thanh whosupervised me in writing this thesis

I wish to express my special thanks to Mr Huyen – Chief accountant and allother members in the accounting department of Huong Giang constructioncompany for providing 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 supportand suggestions

Ha noi, 2006

Dang Thi Lan Anh

dang thi lan anh accounting and auditing 1

Capital construction is one of the national economy’s material productionbranch, that takes an important position in building infrastructure process forour country to come toward socialism So each business must find out amanagement method that suits its characters of production and makes thehighest economic effectiveness as well

In market economy, almost the business trade for the profit goals Formanagement of company, production costs and unit cost are importanteconomical indices because they reflect level quality of production operation.They effect directly to the whole business operation and take the major toenterprise’s existence and development Therefore, the managers always try

to find out the solution to reduce production and unit cost to the minimum.Only by aggregating production cost and evaluating unit cost adequate, exactthat help the managers analyze the operation results Finally, they makesuitable decisions on management in order to enhance the production andmanagement mechanism organization

Realizing the importance of operation production cost and unit cost ingeneral, specially in Huong Giang construction company where I did mygraduation training, 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

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 one General 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 aslabour materials, overhead incurred in production process that form theproduct of construction unit cost in a given period of time

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 costcomponent It is the basis of making production costs statements followingelements and the plan 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 inone component, it does not distinguish economic content of costs Productioncosts include 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 toevaluate unit cost, analyze the implementation of planned unit cost andmaking production costs 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

to separately 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

a finished construction

Unit cost of construction product includes four components such as:

 Direct raw – materials cost

 Direct labour cost

 Using equipment cost

 Factory overhead costs

2.2 Classification:

At first, in order to classify unit cost, accountants have to compute estimation

of cost of construction product

Unit cost is a part of estimation cost that rounds up direct costs and indirectcosts following the finished volume of construction

In accounting and management, unit cost of construction product can beclassified as follows:

2.2.1 Cost price of construction work:

Cost price of construction work includes all the production costs to finishvolume of construction following the estimate

dang thi lan anh accounting and auditing 5

Or :

Cost price of construction work is formed and existed in a given time It’sevaluated 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 ofone construction 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 Itreflects the standard of company ‘s unit cost management

2.2.3 Assessed unit cost:

Assessed unit cost is the total expenses that cost to end a volume ofconstruction It is calculated on the basis of structural feature, method ofbuilding organization and management following costs norms that achieved atthe beginning of construction

Thus, assessed unit cost will changed following fluctuation method ofmanagement and organization of construction or fluctuation structural feature

So, it is recomputed to be suitable

Unit price is announced

by Government for each construction area and other 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 of these above unit cost only include normed costs but actual unitcost includes all costs incurred that means covering normed costs and extracosts

In short, in order to determine accurately the quality of constructionoperation, it is need to compare those unit costs

 Comparing actual unit cost with planned unit cost shows the decreasinglevel 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 finishednorms level 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 processand unit cost reflects the results of production

All the expenses create (on this period or transferred from previous period)and precalculating costs that relate to volume of finished work will form theunit cost of construction product

Thus, production costs and unit cost have closed relationship Productioncosts are the base to evaluate unit cost of finished products Saving or wasting

of production costs effect directly to increasing or decreasing of unit cost.Finally, management of unit cost must be linked to production costsmanagement

The scheme of relationship between production costs and unit cost:

dang thi lan anh accounting and auditing 7

Costs in progress at the beginning Costs create in process

Costs in process at the ending Total of unit cost of

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 ofchecking and supervising the costs in building process

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 wholetechnological process or each specific stage fluctuation to productionmechanism organization, requirement and standard of economicmanagement and internal 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 ofproduct

In construction, product is specific so that the objects of aggregatingproduction costs may be the customer’s order, each construction, part ofbuilding or group of 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 evaluatingunit cost

4.2 Aggregating production costs method:

4.2.1 Aggregating and allocating direct raw materials cost:

Total of unit cost of finished products

Direct raw materials costs are costs of major materials, semi – finishedproduct, auxiliary materials, fuel oil used directly in manufacturingproducts.

Direct raw materials costs are usually aggregated following direct method It

is applied for direct raw materials costs that are only concerned in only onecost objective

If direct raw materials costs are concerned in many objects of aggregatingproduction costs, accountant has to use indirect method That meansaccountant has to determine the reasonable bases to allocate direct rawmaterials costs by following formula:

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

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

Chart 01: Direct raw materials costs accounting

dang thi lan anh accounting and auditing 9

Costs

allocate to

object i =

Total costs to be allocated

General criterion of allocation of all objects

x

General criterion of allocation

-The unused materials distributed for manufacturing are returned

-Value of received spent materials

A/C 111,112,331Raw materials are not

stored and used immediately for producing products

Transferring actual direct raw materials costs

Graduation thesis Aggregating production costs and evaluating unit cost

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 costsobjective If direct labour costs involve in many objects that are notcalculated directly, they could be general aggregated and allocated to costsobjective by reasonable bases, 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 followingthe concretely condition

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

4.2.3 Aggregating and allocating factory overhead costs:

Factory overhead costs are general operating expenses supporting the process

of producing created at construction brigades such as expenses for factoryemployees, the costs of tools, supplies utilised for factory, depreciation offixed assets, expenses for services rendered and expenses paid in cash It alsoincludes trade union fees, social insurance, health insurance deducted fromwages of direct labour, construction machinery operator and managementstaff

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.Factory overhead 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:

dang thi lan anh accounting and auditing 11

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

According to Financial Regulation issued by Ministry of Finance, in order toaggregate and allocate factory overhead costs, A/C 627 – “Factory overheadcosts” is used Accountants may open some sub- account to record specificexpenses for their own operations.

In addition, upon the Directive 89/2002/TT-BTC: Guidung accountants topractice four Vietnamese accounting standards issued following Decision149/2001/QD-BTC dated December 31/2001 of Minister of Finance, Ministry

of finance supplements account 242 – “Long term prepaid cost” This accountused to record expenses which relate to several fiscal periods and theytherefore can not be charged wholly to the current period but should beallocated to the periods in which they relate

Chart 03 : Factory overhead costs accounting

Salaries , allowances payable

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

worker , machinery operator and factory employees

Allocating and transferring fixed factory overhead costs

to each unit s fabricating cost‘s fabricating cost

following normal capacity

Fixed factory overhead costs are not allocated in case that actual level of production is less than normal capacity

Materials costs

A/C 153

Decreased depreciation

of intangible fixed assets

is different from a certain amount that presets aside

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

dang thi lan anh accounting and auditing 13

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

This kind of costs are allocated following the using time of temporaryconstructions or construction period at building site (which is shorter will bechoosed to be allocation base) Calculating the monthly volume of allocation

as follows:

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 machineryoperators, depreciation of fixed assets, rendered machines costs Theseexpenses are computed 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 amonginternal sections, the accounting chart as follows: (Chart 04)

-Estimated recoverable value of spent materials

Using time of temporary constructions or construction period at work camp

Aggregating actual costs

Transferring costs to evaluate unit cost

Allocating equipment costs

to objects

b If company practice by method of purchase equipment services amonginternal sections:

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

dang thi lan anh accounting and auditing 15

Actual price of purchased Machines shift

A/C 512

A/C 333(1)

A/C 623

A/C 133(1) Purchased price Computing to equipment cost

Taxes payable to state budget Taxes deducted

A/C 214

A/C 152,153

A/C 111,112,331

Salaries pay to workers

Depreciation of construction equipment

Materials, tools are used for construction machines

A/C 133(1) Other expenses for construction machines

* 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

of machines be allocated to each object :

 If company does not account specific to each kind of machine,accountants have to evaluate standard machines shift through reductionfactor:

4.2.5 Aggregating production costs accounting:

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

Production costs are needed to transfer in order to aggregate the wholeoperation expenses and detailed in each object after particularly accountingfor each component such as: direct raw materials costs, direct labour costs,using equipment costs, factory overhead costs.

Accountants depend on aggregating production costs by using perpetualinventory method 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 )

dang thi lan anh accounting and auditing 17

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

 If company applies periodical inventory method, accountants use account

631 to aggregate production costs, account 154 is only used to reflect thevalue of work in progress at the end of the period

Chart 05.2: Aggregating production costs

(Periodical inventory method )

5 Estimation of work in progress:

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 ,

equipment costs

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

Accountants have to evaluate actual unit cost of finished product inaccounting period 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 usethe reasonable to evaluate

There are many ways to evaluate work in progress on the basis of handingover method 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 tothe time 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 topay when 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

in progress at the ending of the accounting period by allocating actual costs It

is on the basis of cost price and degree of finishing

dang thi lan anh accounting and auditing 19

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

Actual costs of work in progress of each stage

=

Cost price of work in progress at the ending

x coefficientAllocation

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 byformula 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 aremanufactured by enterprise

In construction activity, because each product has its own estimation anddesign, so the objects of evaluating construction unit cost are construction, orvolume of finished product

* The objects of aggregating production costs are usually equal to the objects

of evaluating unit cost, in capital construction

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

The costs objective are the constructions followed customer’s order, and theobjects 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 withlong cycle, construction is only finished when ending a production cycle, soevaluating unit cost period usually choosed is the time of handing overfinished constructions to use

Therefore, evaluating unit cost period may be not suitable with accountingperiod , it is suitable with production cycle

6.3 The method of evaluating unit cost:

The method of evaluating unit cost is method of using aggregated productioncosts data and other relating data to calculate total unit cost and unit cost offinished product 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 andcosts objective are the same, the evaluating unit cost period is suitable withaccounting period

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 isevaluated to each finished product

dang thi lan anh accounting and auditing 21

Unit

cost = Costs of work inprogress at the

beginning + Production costsincurred in the

period - Costs of work inprogress at the

ending

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 unitcost are customer’s orders However, in order to satisfy the requirements ofwork and because they have their different own estimation so actual unit cost

of each construction is calculated by formula:

6.3.4 Evaluating unit cost by assessment method:

This method is applied when company had computed assessed unit cost ofeach construction 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:

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

or the whole production process Object of evaluating unit cost is eachfinished product made by this process

dang thi lan anh accounting and auditing 23

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

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 theHuong Giang 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

of National Defense, on the basis of incorporation of two enterprises:Construction enterprise 17/5 and Coal exploit enterprises 30/4.Theheadquarter of company is located at A7, Tan Mai – Hai Ba Trung – Ha Noi.Huong Giang company is a State owned enterprise It has a number of capital

as follows: 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 : 2.069.076.220VND

- Amounts granted by the National budget : 1.200.000.000VND

- Amounts undistributed earnings : 950.423.721 VND

Over the past years, company has tried its best to complete the duties.Company has achieved high production results, increase business surplus andstep by step expand its capital At present, the company’s market is all overthe nationwide

The company’s growth and development in recent years are presented infollowing 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:

The major products of Huong Giang construction company are constructions,construction items such as: civil works, industrial buildings, watercommunication works, bridgeworks The construction scale is not the same,products are specific, and long constructional duration Besides, theconstruction procedures of company are taken at different places and they aredelivered to the location of products

dang thi lan anh accounting and auditing 25

Because of the feature of construction capital, so the company’s brigades areindependent and distributed to many provinces and cities in all over thecountry It effect directly to the company’s production management work.Next to the influence of construction product characters, it also is effected bytechnology production process Construction practices of company may bedevided into six stages as follows:

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 forbrigades Besides, it is also responsible for adminitrative work, establish thelabour documents and the standard of salaries, allowances

 Technical – planning division:

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

as follows:

o They make the construction schedule, the estimate, technical supervisonwhen the company bids a construction And they have to be responsiblefor constructional 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:

dang thi lan anh accounting and auditing 27

Making balance sheet of finished works

Contract closing

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 theschedule and quality of works

1.3 Accounting mechanism organization:

In order to meet the production and business features and make fulladvantages of ability accountants, the accounting apparatus is organized tofollow model of both concentration 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 bycompany and brigades, sums – up statements of brigades to make thecompany’s general statements of account

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

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

to the director in the business activities and responsible for all of theaccounting organizations in the company

o Accountant of general works and fixed assets is responsible foraggregating the whole operation costs, recording the movement of fixedassets and make its allocation table, open the detailed books and makingstatements to company’s regulations

o Accountant of banking and materials is responsible for recordingtransactions of materials movement and the balance, the movement ofcash in banks Besides, he is also in charge of opening “Book forrecording 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

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

1.4.2 The accounting book system:

dang thi lan anh accounting and auditing 29

Accountant

of salary and insurance

Cashier

Accountants of construction brigades

In order to suit small – scale production, few accountants and specialization

of accounting mechanism, Journal Ledger is the form of book used in theaccounting division 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.

Original documents

Original documents listing Ledger CardsSubsidiaryCash book

detailed reports

Financial Statements

Note :

Daily recording Month end recording Reconciling, checking

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 constructionbrigades to build Company applies two types of task – work:

 Straight task – work

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

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

 For products of construction, aggregating production costs are on thebasis of production costs of each construction incurred are traced to thisconstruction

 For customer’s orders, the whole costs relating to construction areaggregated 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,

at the end of accounting period, accountants must allocate production costsfollowed the reasonable bases such as: assessed materials, assessed directlabour costs, output percentage, value estimate

2.2 The objects of evaluating unit cost:

The objects of evaluating unit cost of Huong Giang company are finishedproducts So actual unit cost of finished product is the whole costs incurredthat relating directly to this construction or this construction item during theconstruction period

For work parts need to calculate the actual unit cost, the objects of computingunit cost are each specific structure part with its own estimation and it reaches

dang thi lan anh accounting and auditing 31

to the reasonable stop point followed the contract’s regulations In order toevaluate unit cost of this object, we must determine the work in progress.Huong Giang company determines the value of work in progress are thewhole costs for parts that don’t reach to the stop point.

2.3 Classification and management of production costs:

In order to manage effectively production costs and calculate accurately unitcost, analyzing the influence of each element cost in unit cost is so important.Before building, any construction must be made the estimation of technicaldesign in order to examine by the leaders Besides, this estimation is the base

of making economic contract

The estimates are made for each construction and analyzed following eachcosts component So it is able to compare and check the implementation ofcosts components 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:

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 aredetailed according 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

is construction N18 – Political Institute

2.4.2.1 Aggregating direct raw – materials costs:

In Huong Giang company, raw – materials costs include all the value ofmaterials needed to construct a finished construction.

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

In order to savely and fully use materials, construction brigades makemonthly the plan of buying materials on the basis of assessement and thevolume of building The staff of providing makes the “Advance request”(supplement 1) and transfer to the managers in order to examine and grantcapital

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.When chief accountant and director had signed the payment voucher, cashiermakes amount of money as the amount in voucher The advance request is thebase of recording in to detailed books of A/C 111, A/C 141

When inventory arrived, storekeeper with master and supplying staffexamine the quantity and the quality of materials After that, storekeepermakes “Goods receipt note” (supplement 2) Storekeeper makes “Goodsdelivery 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 actualcost of inventory includes price on purchase invoice and transportationcharges , handling expenses On the basis of “Goods delivery note”,accountants of brigade record to the “Raw materials delivery vouchercollection table” (supplement 4) At the end of month, brigadeaccountant compares the accounts on Goods delivery note with Raw materialsdelivery voucher collection table Then he / she sends them and other relating

dang thi lan anh accounting and auditing 33

vouchers to Accounting and Financial division Accountant of productioncosts 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) andJournal Ledger When the data of raw materials costs collection table and thedata of subsidiary ledger A/C 621 are the same, accountant transferrers directraw materials costs from A/C 621 to A/C 154

2.4.2.2 Aggregating direct labour costs:

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

In addition, company also uses a lot of rent employees Company gives thislabour force to master of construction brigades whom are responsible forpayment to them following the rental contract Total of payment to the rentemployees are credited to A/C 334 (detailed: Payable to rent employees) andthe salary of company’s employees are credited to A/C 334 (detailed: Payable

to employee)

Huong Giang company applies two payment methods:

 Payment following product: This method is applied for the labour forcewho directly involve in construction

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

Salary per month = The basis salary level x Coefficient

Daily salary = Salary per month / 26

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

** After received construction from company, the master gives each part ofwork to each brigade through “Lump- sump contract” (supplement 20) Thehead of brigades 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 notclosed untill the end of month, the technical staff will determine the finishedworks in this month 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

“Rental contract” with the head of them (supplement 8) When finishing, themaster and the technical staff examine and accept to pay followed the agreedvolume and the unit price

** At the end of month, brigades accountants gather the vouchers that relate

to labour cost and send them to Accounting and Financial division incompany Accountant of company makes the “Salary allocation table”(supplement 9) Base on these vouchers, accountant record to “Subsidiaryledger A/C 622” (supplement 10), “Subsidiary ledger A/C 154” and JournalLedger After comparing, accountant transfers the direct labour cost of eachconstruction to A/C 154

2.4.2.3 Aggregating equipment costs:

dang thi lan anh accounting and auditing 35

Salary

per

person =

Total of received when closing contract

The sum of construction days

x

Actual construction days

of per person

Equipment costs of company include depreciation of construction machinerycost, salary of machines operators, fuel oil cost, machines repair cost Thiscomponent is detailed in each construction.

Company applies “Operation journal of construction machinery” todetermine accurately the equipment cost to each object Accountant at brigademakes the operation voucher of machines to each construction, and sendsthem to Accounting 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

“Equipment costs allocation table” (supplement 11) on the basis of rentalmachinery contract and operation voucher of machines

Equipment costs are allocated by following formula:

The construction machinery of N18 – Political Institute are belong to thecompany So the whole costs of machines are recorded as follows:

 Fuel oil costs to operate machines: Brigades construction purchase fueland oil by advance And then recording following the principle of recording

to direct object, that means costs created by any work camp or any machinesare recorded to this work camp or this machine Accountant of brigadesmaking daily the “Fuel and oil delivery voucher collection table formachinery operation” (supplement 12) on the basis of original vouchers Atthe end of month, brigade accountant gathers vouchers related to fuel and oilcosts to transfer to Accounting and Financial division in order to record tosubsidiary ledger A/C 623 and Journal Ledgers

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 shift served for construction B

 Machinery operators cost: The initial vouchers are the time sheet,operation journal of construction machinery, and the lump – sump contracts.The master records daily in time sheet for each operator Brigade accountantcalculates salary for machinery operators when closing the lump – sumpcontract

Accountant of salary makes the “Payroll” for machinery operators on thebasis of vouchers transferred by brigade accountant Base on this table,accountant of production costs transfers the machinery operators cost to A/C

154 and records to Journal Ledgers

 Depreciation of construction machinery cost: Depreciation of constructionmachinery of company are under the Decision 1062/TC/QD/CSTC Thesecosts are 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 tothis method, depreciation cost of each month is estimated by followingformula:

Monthly, basing on the original vouchers , accountant at brigades make the

“Equipment costs collection table” (supplement 13) And accountant atcompany makes the “Depreciation of fixed assets allocation table” forconstructions on month and records to “Subsidiary ledger A/C 623”(supplement 14),”Subsidiary ledger A/C 154”, Journal Ledgers

2.4.2.4 Aggregating factory overhead costs:

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

 Salary of brigade’s management staffs and social insurance, healthinsurance of management staffs, direct labour, machinery operators Daily,brigade’s accountant mark in the Time sheet and base on working timerecording sheet to calculate management staffs cost And then, he / she makesthe “Payroll” for management staffs (supplement 15).

 Tools and supplies costs: In company, tools and supplies includeprotective clothes, picks, shovels, scaffoldings with low value , they areallocated one time into factory overhead cost And high value scaffoldings arerecorded to account fixed assets and determined depreciation following thetime using for each construction At the end of month, brigade’s accountantmakes the “Tools delivery voucher collection table” (supplement 16) totransfer to Accounting and Financial 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 accountantrecord daily to “Factory overhead costs collection table” (supplement 17) onthe basis of invoice, payment voucher, and other vouchers At the end ofmonth, Accountant of production costs allocates the factory overhead cost toevaluate the unit cost of each construction on the basis of vouchers transferred

Total of factory overhead costs

The major salary of direct labour

of all constructions

x

Salary of direct labour

of each construction

In October, brigade 8 only constructs the construction N18, so factoryoverhead costs are aggregated directly to this construction.

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

“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 inOctober” (supplement 24)

2.5 Estimating of work in progress:

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

At the end of year, the representative of Technical division, the construction’stechnician and the construction manager estimate the work in progress Afterreceiving the “Work in progress physical count report” transferred byTechnical division, the Accounting and Financial determine the actual cost ofwork in progress by following formula:

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

2.6 Evaluating unit cost in Huong Giang construction company:

dang thi lan anh accounting and auditing 39

Cost of work in progress

at the beginning + Costs incurred in

the period

x

Volume of unfinished product at the ending