Cost accounting and product costing in bac mien trung consultancy investment construction and trading joint stock company

After an internship at Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company, my study with topic: “Cost accounting and product costing in Bac Mien Trung Con

I hereby declare that this thesis is my own work and effort and that has

no been submitted anywhere for any award Where other resources ofinformation have been used, they have been acknowledged

The data, figures and results described in this thesis are taken from thefactual situation of the internship company The work was done under theguidance of my supervisor Ms.Cao Phuong Thao, the lecturer of the Academy

of Finance

Hanoi, 15th February, 2016 Student

Pham Thi Lan Anh

Firstly, I am deeply indebted my supervisor Ms.Cao Phuong Thao, whohas continuously helped, and encouraged me to keep the right direction of thethesis Without her patience, enthusiasm and strong expertise knowledge, thethesis could not be completed

Secondly, I would like to express my profound gratitude to Bac MienTrung Consultancy Investment Construction and Trading Joint StockCompany for giving me a chance to expose factual business environment and

to collect data for my thesis

A sincere thank I want to send to all the company’s staff, especiallyMs.Nguyen Thi Hue, the Director, an accountant for their kindness andsupport during my internship

Besides, I also get much support from my friends at the Academy ofFinance, whose recommendations and advice are really a great help for mythesis A special deep thank is what I sent to them, by this way

Especially, I would not have gone this far but for my family, who arealways beside and stimulating me to finish the tasks From my heart, I want toexpress how grateful I am to them which I cannot say in words I will notforget all these contributions

Finally, because of limitations of time and knowledge, the mistakes areunavoidable Therefore, I hope to receive more contributions and suggestions

to make my graduation thesis better

In the social-oriented market economy with many sectors, enterprisesstruggle for a bigger and bigger market share Being aware of the strongcompetition, enterprises in general, construction enterprises in particular;therefore make a serious concern of accounting Because, accounting makesitself available for the business owners to assess and analyze the business'sperformance This will help the owner to decide what improvements theyneed to make, or what practices to keep doing in order to keep the company at

it is successful place Due to its specific business characteristics of buildingmany constructions, the accounting for Cost accounting and product costingbecomes more difficult and complicated

After an internship at Bac Mien Trung Consultancy Investment

Construction and Trading Joint Stock Company, my study with topic: “Cost accounting and product costing in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company” will point out

how important accounting for expense and cost of product are, and how theyare carried out at the company

The main content is shown in three chapters

Chapter 1: Literature review of cost accounting and costing product Chapter 2: Current situation of cost accounting and product costing in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company

Chapter 3 : Some suggestions for improving the efficiency of organizing accounting in company

ACKNOWLEDGEMENT ii

ABSTRACT iii

LIST OF ABBREVIATION iv

TABLE OF CONTENT v

PART 1: INTRODUCTION 1

PART 2 : MAIN CONTENT 4

CHAPTER 1: LITERATURE REVIEW OF COST ACCOUNTING AND PRODUCT COSTING 4

1.1 The necessity of organizing the collection of costs accounting and calculate cost of product in the enterprise 4

1.1.1 Meaning of accountants set costs accounting and product costing in the construction business 4

1.1.2 Requirements management costs accounting and product costing in the construction business 7

1.1.3 The task of costs accounting and product costing in the construction business 10

1.1.4 The role and significance of costs accounting and product costing in the construction business 11

1.1.4.1 The role of costs accounting and product costing in the construction business 11

1.1.4.2 Significance of costs accounting and product costing in the construction business 12

1.2 Costs accounting and classification of costs in the construction business 14

1.2.1 Costs accounting 14

1.2.2 Classification of costs accounting 14

1.3 Costs of production and classification costs of production in construction business 16

1.3.1 Costs of production 16

1.3.2 Classification costs of production 16

1.4 The relationship between costs accounting and product costing in the construction business 17

1.5.1 Methods of accounting for costs accounting 18

1.5.2 Organizing accounting for costs accounting 19

1.6 Organization of accountants calculate product costs 20

1.6.1 Product cost calculation period 20

1.6.2 The method of calculating the cost of products 21

CHAPTER 2: CURRENT SITUATION OF COST ACCOUNTING AND PRODUCT COSTING IN BAC MIEN TRUNG CONSULTANCY INVESTMENT CONSTRUCTION AND TRADING JOINT STOCK COMPANY 23

2.1 Overview about Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company 23

2.1.1 History and development of the Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company 23

2.1.2 Business field and products 24

2.1.3 Features of the organizational structure business activities in the company 24

2.1.4 Accounting system 26

2.1.4.1 Structure of Accounting Department 26

2.1.4.2 Accounting form and regime apply 27

2.1.4.3 System of accounting books 27

2.1.4.4 System of accounting vouchers used 30

2.1.4.5 System of Financial Statement 30

2.2.2 Accounting of costs accounting 32

2.2.2.1 Accounting cost direct materials 32

2.2.2.3 Executing machine using cost 46

2.2.2.4 Accounting for factory overhead costs 48

2.2.3 Assessment unfinished products in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company (ACC 154) 51

2.2.4 Accounting product costing in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company 55

3.1 For organizing accounting 57

3.2 For accounting vouchers 58

3.3 For accounting forms 583.4 General conclusion about cost accounting and costs of product in

Bac Mien Trung Consultancy Investment Construction and Trading

Joint Stock Company 58PART 3: CONCLUSION 60APPENDIX 61

PART 1: INTRODUCTION

1 Rationale of the study

When starting a business, one of the most important aspects to thinkabout is the accounting process and how you choose to account all of yourfinancial information The purpose of accounting for a business is to have arecord of the receipts and expenditures of it is daily activities Also,accounting makes itself available for the business owners to assess andanalyze the business's performance This will help the owner to decide whatimprovements they need to make, or what practices to keep doing in order tokeep the company at it is successful place

Nowadays, every companies work for the only aim of gaining money or

profit Companies cannot survive with negative business result for a long continuously period Therefore, the work of calculating expenses and

calculating the cost of product is more important The more accurate theexpenses are reflected, the easier the management can find out the existingproblems and look for solutions That is the reason why accounting forexpenses and cost of product is especially paid attention within accountingsystem

From its foundation, Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company always realizes the

important role of accounting for expenses and costs of product As a student

of the Academy of Finance, undergo internship at the company, I was aninsight into the organizational structure and the management apparatus of thecompany and see the importance of the organization of cost accounting and

product costs In this situation a research with the topic named: “Organizing accounting for Cost accounting and product costing in Bac Mien Trung

Consultancy Investment Construction and Trading Joint Stock Company”

was chosen to be carried out

2 Aims of the study

The study was carried out in order to achieve: First, it is to show the

situation of carrying out organizing accounting “Cost accounting and product costing”in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company to compare with theory Second, it is to

point out the strengths and weaknesses, achievements and limitations existing,and suggest possible solutions to improve the efficiency of organizingaccounting in future

3 Scope of the study

My study mainly focuses on expenses, cost of product and all itemsreflected in Journal at June, 2015 Another focus is the accounting methodand procedures applied by the company All data and figures belong toaccounting fiscal year 2015

4 Methods of the study

There are two main research methods: qualitative and quantitativeapproach that was decided on gathering relevant information from primaryand secondary data sources for the study

The data for the study was collected from financial statements of BacMien Trung Consultancy Investment Construction and Trading Joint StockCompany (general journals, ledgers and related vouchers) which is focused

on expenses, cost of product and all items reflected in Journal at June, 2015 It

is primary data

The secondary data which were collected from existing literature formedthe literature review of this study The sources of the secondary data includedbooks, journals, articles obtained from the internet

5 Organization of the study

The study comprises three main chapters:

Chapter 1: Literature review This chapter gives a general overview ofaccounting for cost accounting and product costing

Chapter 2: Reflects to current situation of accounting for Cost accounting and product costing in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company

Chapter 3: Some suggestions for improving the efficiency of organizingaccounting in company

PART 2 : MAIN CONTENT CHAPTER 1: LITERATURE REVIEW OF COST ACCOUNTING

AND PRODUCT COSTING 1.1 The necessity of organizing the collection of costs accounting and calculate cost of product in the enterprise

1.1.1 Meaning of accountants set costs accounting and product costing in the construction business

In today market economy, competition is inevitable; it forcescompanies to enhance their production as well as the quantity and quality ofthe products However, at high quality, the products price must be acceptable

to customer This is the reason why every company needs cost accounting toaccurate measure and record any costs and expenses appear at the right time,and from that information, managers could produce ideas and make decisionfor future production development in order to generate as much profit aspossible for the company Making things simple, we can say that there arethree points should be attempt by every corporation: product quality anddesign, low down production costs and expenses, and low price fortheproducts and services

While cost accounting is often used within a company to aid in decisionmaking, financial accounting is what the outside investor communitytypically sees Financial accounting is a different representation of costs andfinancial performance that includes a company's assets and liabilities Costaccounting can be most beneficial as a tool for management in budgeting and

in setting up cost control programs, which can improve net margins for thecompany in the future

One key difference between cost accounting and financial accounting isthat while in financial accounting the cost is classified depending on the type

of transaction, cost accounting classifies costs according to information needs

of the management Cost accounting, because it is used as an internal tool bymanagement, does not have to meet any specific standard set by the GenerallyAccepted Accounting Principles and as result varies in use from company tocompany or from department to department

Scholars have argued that cost accounting was first developed during theindustrial revolution when the emerging economics of industrial supply anddemand forced manufacturers to start tracking whether to decrease the price

of their overstocked goods or decrease production

During the early 19th century when David Ricardo and T R Malthuswere developing the field of economic theory, writers like Charles Babbagewere writing the first books designed to guide businesses on how to managetheir internal cost accounting

By the beginning of the 20th century, cost accounting had become awidely covered topic in the literature of business management

All types of businesses, whether service, manufacturing or trading,require cost accounting to track their activities Cost accounting has long beenused to help managers understand the costs of running a business Moderncost accounting originated during the industrial revolution, when thecomplexities of running a large scale business led to the development ofsystems for recording and tracking costs to help business owners andmanagers make decisions

In the early industrial age, most of the costs incurred by a business werewhat modern accountants call "variable costs" because they varied directlywith the amount of production Money was spent on labor, raw materials,power to run a factory, etc in direct proportion to production Managers could

simply total the variable costs for a product and use this as a rough guide fordecision-making processes.

Some costs tend to remain the same even during busy periods, unlikevariable costs, which rise and fall with volume of work Over time, these

"fixed costs" have become more important to managers Examples of fixedcosts include the depreciation of plant and equipment, and the cost ofdepartments such as maintenance, tooling, production control, purchasing,quality control, storage and handling, plant supervision and engineering Inthe early nineteenth century, these costs were of little importance to mostbusinesses However, with the growth of railroads, steel and large scalemanufacturing, by the late nineteenth century these costs were often moreimportant than the variable cost of a product, and allocating them to a broadrange of products led to bad decision making Managers must understandfixed costs in order to make decisions about products and pricing

Product cost refers to the costs used to create a product These costsinclude direct labor, direct materials, consumable production supplies, andfactory overhead

Product cost can also be considered the cost of the labor required todeliver a service to a customer In the latter case, product cost should includeall costs related to a service, such as compensation, payroll taxes, andemployee benefits

Product cost can be recorded as an inventory asset if the product has notyet been sold It is charged to the cost of goods sold as soon as the product issold, and appears as an expense on the income statement

Product cost appears in the financial statements, since it includes themanufacturing overhead that is required by both GAAP and IFRS However,managers may modify product cost to strip out the overhead component when

making short-term production and sale-price decisions Managers may alsoprefer to focus on the impact of a product on a bottleneck operation, whichmeans that their main focus is on the direct materials cost of a product and thetime it spends in the bottleneck operatio.

Costs that become part of the cost of goods manufactured are calledproduct costs Such costs are incurred on manufacturing process eitherdirectly as material and labor costs or indirectly as overheads Since thematching principle of accounting requires expenses to be matched to therevenue they generate, therefore it is necessary to expense product costs onlywhen the revenue from the sale of products is realized This is achieved bydebiting product costs to the cost of goods manufactured and thus expensedonly at the time of sale of such goods

All of the requirements above are considered to be covered by costaccounting as itself objectives Cost accounting covers classification, analysis,and interpretation of cost In other words, it is a system of accounting, whichprovides the information about the ascertainment, and control of costs ofproducts, or services It measures the operating efficiency of the enterprise It

is an internal aspect of the organization Cost Accounting is accounting forcost aimed at providing cost data, statement and reports for the purpose ofmanagerial decision making

1.1.2 Requirements management costs accounting and product costing in the construction business

Cost management is the process of planning and controlling the budget

of a business Cost management is a form of management accounting thatallows a business to predict impending expenditures to help reduce the chance

of going over budget

Many businesses employ cost management plans for specific projects, aswell as for the over-all business model When applying it to a project,expected costs are calculated while the project is still in the planning periodand are approved beforehand During the project, all expenses are recordedand monitored to make sure they stay in line with the cost management plan.After the project is finished, the predicted costs and actual costs can becompared and analyzed, helping future cost management predictions andbudgets.

Implementing a cost management structure for projects can help abusiness keep their over-all budget under control Several businessintelligence (BI) programs, such as Oracle Hyperion, offer cost managementsoftware to help businesses monitor costs and increase profitability While thesoftware may help, it is not imperative that software is used when executing acost management plan

Vendors may refer to cost management software applications as costaccounting, spend management or cost transparency products

Management accounting facilitates the provision of financialinformation to management for decision making Management accountingalso involves the evaluation of alternative strategies and actions by theapplication of techniques and concepts such as relevant costing, cost-volume-profit analysis, limiting factor analysis, investment appraisal techniques andclient / product profitability analysis

Control process in management accounting system starts by definingstandards against which performance may be measured such as standard costsand budgets Actual results are measured and any variance between targetsand results are analyzed and where necessary, corrective actions are taken.Management accounting plays a vital role in the monitoring and control of

cost and efficiency of the routine processes and as well as one-off jobs andprojects undertaken by an organization.

Management accounting lays great emphasis on accountability througheffective performance measurement By setting targets for strategic businessunits and as well as for departments, management accounting assists in theassignment of responsibility for the achievement of business targets byindividual managers Responsibility accounting is achieved by appraising theperformance of managers responsible for their business units while giving dueconsideration for factors not within their control or influence

Product cost management (PCM) is a set of tools, processes, methods,and culture used by firms who develop and manufacture products to ensurethat a product meets its profit (or cost) target

There is not an agreed-upon definition for product cost management or

an agreed scope for what it encompasses Some people argue that PCM is asynonym for target costing However, others argue that PCM is different,because target costing is a pricing method, whereas, PCM is focused on themaximum profit or minimum cost of a product, regardless of the price atwhich the product is sold to the end customer.Some analysts seem to equatePCM to design-to-cost

Some practitioners of PCM are mostly concerned with the cost of theproduct up until the point that the customer takes delivery (e.g manufacturingcosts + logistics costs) or the total cost of acquisition They seek to launchproducts that meet profit targets at launch rather than reducing the costs of aproduct after production Other people believe that PCM extends to a totalcost of ownership or lifecycle costing (Manufacturing + Logistics +operational costs + disposal) Depending on the practitioner, PCM mayinclude any combination of organizational or /cultural change, processes,

team roles, and tools Many believe that PCM must encompass all fouraspects to be successful and have shown how the four parts work together

1.1.3 The task of costs accounting and product costing in the construction business

Cost accountants complete gross margin analysis related to a company'sproducts, inventory and its overall value As an essential part of theaccounting function, cost accountants calculate the costs of goods sold on thecompany's financial reports, which affects the company's bottom line Theyalso use complicated formulas, software and spreadsheets to helpmanagement and business owners decide what prices to charge for products.The Cost Accountant will be responsible for:

+ Planning, Studying, and collecting data to determine costs of businessactivity such as raw material purchases, inventory and labor

+ Analyzing data collected and recording results

+ Analyzing changes in product design, raw materials, manufacturingmethods or services provided, to determine effects on cost

+ Analyzing actual manufacturing costs and preparing periodic reportscomparing standard costs to actual production costs

+ Recording cost information for use in controlling expenditures

+ Analyzing audits of costs and preparing reports

+ Making estimates of new and proposed product costs

+ Providing management with reports specifying and comparing factorsaffecting prices and profitability of products or services

+ Maintaining Cost Accounting System

+ Assisting in Month end close of the General Ledger

+ Conducts physical inventories and monitors cycle count program

+ Reconciles finished goods inventories

1.1.4 The role and significance of costs accounting and product costing in the construction business

1.1.4.1 The role of costs accounting and product costing in the construction business

A cost accountant observes and analyzes the costs associated with doingbusiness These costs can be tangible or intangible and cover everything fromthe cost of the office lease to inventory and labor expenditures A person inthis position is responsible for determining which costs can be reduced oreliminated and how to implement the savings without compromising thequality of daily operations or customer service

The analysis process of a cost accountant is fairly constant regardless ofthe industry in which he works The cost accounting software used can begeneric, industry specific or created in-house for the specific company Thesoftware program normally consists of a database of costs, both fixed andvariable It usually includes basic features to track changes and projectfluctuations in expenditures and assets

Armed with these software parameters, a cost accountant delves intodetailson material, manufacturing and labor costs He includes analyses ofcosts versus profitability in all areas of operation The finer points of hisresearch may include utility costs, real property and equipment values, taxissues and variations in profit margins Reports reflecting his findings aregenerally supplied to management

Cost accountants may find standard systems for analysis insufficient, astheir capabilities are often limited In this case, the accountant may create hisown database and create checks and balances tailored to the research at hand

He is mosteffective in his job when the data accumulation and analysissystem is streamlined to meet his diagnostic needs Customized software

systems also facilitate the creation of reports for management that pinpointcritical areas of concern.

Unlike product costing, cost accounting doesn't have the problemsassociated with adjusting projections to suit modern manufacturingtechniques or counting individual inventory components This allows costaccounting to deliver detailed reports regarding the cost of each phase ofproduction A business can use these reports to specifically target areas of thecompany for cost reduction and efficiency improvement Additionally, costaccounting focuses solely on the cash spent to create goods as an economicfactor of production This means a business using cost accounting viewsmoney as the single factor affecting the company's ability to produce goodsand services

1.1.4.2 Significance of costs accounting and product costing in the construction business

The significance of cost accounting is its capacity to shed light on theoverall profitability of company operations The better you understand thefinancial workings of your business, the better you can fine-tune processesand limit unnecessary waste Cost accounting allows you to look past the day-to-day mechanics of managing cash flow to assess whether your company isactually making money or whether you need to tighten systems and reassesspriorities

Cost accounting addresses business expenditures, or sums that yourcompany spends to operate its infrastructure and provide customers withproducts and services The cost accounting process tracks variable costs, orexpenditures such as materials and payroll that go directly into the productsand services you provide Cost accountants also tally fixed costs, or other

expenses such as rent and utilities that do not change much regardless of salesvolume.

When you are calculating your company's finances, accuracy is crucial

to both financial statements and tax filings Each component of your financialstatements and reporting impact the overall financial picture presented foryour business Incorrect calculations or inaccurate reports can create legalproblems with your tax filings as well as significant concerns from investors.When you are calculating your company's finances, accuracy is crucial

to both financial statements and tax filings Each component of your financialstatements and reporting impact the overall financial picture presented foryour business Incorrect calculations or inaccurate reports can create legalproblems with your tax filings as well as significant concerns from investors.When you are calculating your company's finances, accuracy is crucial

to both financial statements and tax filings Each component of your financialstatements and reporting impact the overall financial picture presented foryour business Incorrect calculations or inaccurate reports can create legalproblems with your tax filings as well as significant concerns from investors.Your inventory calculations on the balance sheet rely on accuratereporting of the direct costs of your product If you fail to calculate yourproduct cost correctly, your inventory value will be inaccurate Depending onthe amount of the error in calculation, it can create a material error in yourasset reporting The company's assets are an important factor in determiningthe worth of your business, particularly when you are seeking investments orfinancing

When you calculate product costs, the approach varies if youmanufacture the product versus buying from a wholesaler If you purchaseyour product from a wholesaler, the product cost is simply represented as the

price you pay to acquire the product When you manufacture the product house, consider all of the associated costs The overhead for yourmanufacturing facility, payroll for manufacturing activities and the cost ofparts are all part of your cost of goods sold.

in-1.2 Costs accounting and classification of costs in the construction business

Expenses are the decreases in economic benefit during the accountingperiod in the form of outflows and depletion of assets or incurrence ofliabilities that result in decreases in equity, other than those relating todistributions to equity participants (VAS 01-The general standard) Thedefinition of expenses encompasses losses as well as those expenses that arise

in the course of the ordinary activities of the entity Expenses that arise in thecourse of the ordinary activities of entity include cost of sales, wages anddepreciation

1.2.2 Classification of costs accounting

Classification of cost means, the grouping of costs according to theircommon characteristics The important ways of classification of costs are:

By Element: There are three elements of costing i.e material, labor and

expenses

By Nature or Traceability:Direct Costs and Indirect costs Direct Costs

are Directly attributable/traceable to Cost object Direct costs are assigned toCost Object Indirect Costs are not directly attributable/traceable to CostObject Indirect costs are allocated or apportioned to cost objects

By Functions: production,administration, selling and distribution, R&D.

By Behavior: fixed, variable, semi-variable Costs are classified

according to their behavior in relation to change in relation to productionvolume within given period of time Fixed Costs remain fixed irrespective ofchanges in the production volume in given period of time Variable costschange according to volume of production Semi-variable costs are partlyfixed and partly variable

By control ability: controllable, uncontrollable costs Controllable costs

are those which can be controlled or influenced by a conscious managementaction Uncontrollable costs cannot be controlled or influenced by a consciousmanagement action

By normality: normal costs and abnormal costs Normal costs arise

during routine day-to-day business operations Abnormal costs arise because

of any abnormal activity or event not part of routine business operations E.g.costs arising of floods, riots, accidents etc

By Time: Historical costs and predetermined costs Historical costs are

costs incurred in the past Predetermined costs are computed in advance onbasis of factors affecting cost elements Example: Standard Costs

By Decision making Costs: These costs are used for managerial

decision making

Marginal costs: Marginal cost is the change in the aggregate costs due

to change in the volume of output by one unit

Differential costs: This cost is the difference in total cost that will arise

from the selection of one alternative to the other

Opportunity costs: It is the value of benefit sacrificed in favor of an

alternative course of action

Replacement cost: This cost is the cost at which existing items of

material or fixed assets can be replaced Thus this is the cost of replacingexisting assets at present or at a future date

Shutdown cost:These costs are the costs which are incurred if the

operations are shut down and they will disappear if the operations arecontinued

Capacity cost: These costs are normally fixed costs The cost incurred

by a company for providing production, administration and selling anddistribution capabilities in order to perform various functions

Sunken cost: cost already incurred

1.3.2 Classification costs of production

Product costs refer to the costs used to create a product These costsinclude direct labor, direct materials, consumable production supplies, andfactory overhead Product cost can also be considered the cost of the laborrequired to deliver a service to a customer In the latter case, product costshould include all costs related to a service, such as compensation, payrolltaxes, and employee benefits.

The cost of a product on a unit basis are typically derived by compilingthe costs associated with a batch of units that were produced as a group, anddividing by the number of units

1.4 The relationship between costs accounting and product costing in the construction business

Basically, cost and product cost represent for cash out-flow of amanufacturing process cycle cost in a period is the basis unit to calculate theprice of products, tasks, or jobs which had done in that period Cost hasdirectly influence to the cost of the product that a company producing Thereare some differences between cost and cost of product, as follow:

a Cost is directly connected with the period that cost occurs For moredetail, when we mention of a cost, also we must give a specific period ofactivity, otherwise the information of cost will useless for manager Productcost, on the other hand, is not really directly connected to producing period,but it is connected to a specific amount of cost for a number of finishedproduct units

b Cost in a period may include items such as indirect material, indirectlabor, maintenance and repairs on production equipment (which may be paidfrom previous period but the services only reality occur in the current period)and heat and light, property taxes, depreciation, and insurance on facilities.However, product cost only be considered with costs assigned during the time

a number of products started to be produce till the time they are finishedgoods.

c cost is not only related to finished product but also related to finished product and fail product at the end of financial period On the otherhand, product cost is only related to the cost of un-finished product broughtforward from the previous period and the cost of finished product in currentfinancial period, it means that product cost is not covered the cost of fail units

un-or un-finished units at the end of a period

1.5 Organizing accounting for costs accounting

1.5.1 Methods of accounting for costs accounting

These pronouncements permitted the use of two different accountingmethods for the treatment of construction contracts:

The two methods should not be used for the same circumstances asacceptable alternatives from which contractors are free to choose as suitsthem The percentage-of-completion method ordinarily is to be used for theaccounting of long-term construction contracts except in two situations:

Where reasonably reliable estimates cannot be made; or

Where the results of using the completed-contract method do not differmaterially from those obtained by using the percentage-of-completionmethod

It is ordinarily presumed that virtually all contractors are capable ofmaking reasonably reliable estimates, otherwise their companies would not begoing concerns SOP 81-1 states:

For entities engaged on a continuing basis in the production anddelivery of goods or services under contractual arrangements and for whomcontracting represents a significant part of their operations, the presumption isthat they have the ability to make estimates that are sufficiently dependable

to justify the use of the percentage-of-completion method of accounting

Persuasive

1.5.2 Organizing accounting for costs accounting

evidence to the contrary is necessary to overcome that presumption Theability to produce reasonably dependable estimates is an essential element ofthe contracting business Accordingly, entities with significant contractingoperations generally have the ability to produce reasonably dependableestimatesand for such entities the percentage-of-completion method ofaccounting is preferable in most circumstances

All attributable costs of a contract must be recognized as constructioncosts Other costs that cannot be reasonably attributed to contract activityshall be charged as general and administration expense in the accountingperiod they are incurred Contract costs consist of the following:

- Direct or Specific Costs of the construction contract Examples ofdirect costs include:

- Direct material consumed on a specific project

-Direct labor allocated to a particular contract (e.g project in charge,site engineers, etc)

- Insurance cost specifically incurred on a construction contract

- Depreciation of machinery and equipment used on a specific contract

- Indirect Costs that may be allocated to individual contracts on areasonable basis Examples of such costs include:

Allocation of the cost of central technical assistance department based onfor example number of hours spent by technical staff on various contractsInsurance cost allocation in respect of machinery used on multiple sitesConstruction overheads

Allocation of salary of staff employed on multiple contracts (e.g projectsupervisors)

Indirect costs must be allocated on the basis of normal level ofconstruction activity Similar to the requirements of IAS 2 Inventory, anyabnormal wastage must not be included in the contract costs This is toprevent recognition of any such costs as construction assets which are notlikely to be recoverable in the future

Any other costs specifically allowable under the contract

Contract Costs are recognized according to the method of stage ofcompletion used Contract costs incurred but not recognized in incomestatement are included in the Gross Amount Due from Customers as

explained below.

1.6 Organization of accountants calculate product costs

1.6.1 Product cost calculation period

IAS 11 Construction Contracts was introduced in order to counter thedeficiencies observed in accounting for construction contracts It defines how

a contractor should recognize costs and revenue over the life of a constructioncontract

IAS 11 proposes accounting for construction contracts on the basis ofexpected outcome

a) Outcome of a contract can be reliably measured:

Net Profit: If a profit is expected under the contract, revenue and costs

(and hence profit) are to be recognized in the income statement based on theStage of Completion of the contract (also known as Percentage of CompletionBasis)

Net Loss: If a net loss is expected under the contract, the entire loss is

recognized immediately in the income statement Revenue and contract costsare recognized in the income statement on the basis of Stage of Completion ofthe contract

b) Outcome of contract cannot be measured reliably:

Uncertain: If the outcome of construction contract is uncertain, no profit

is recognized Costs are recognized in the period in which they are incurred.Revenue is only recognized to the extent of costs incurred that are expected to

be recovered

1.6.2 The method of calculating the cost of products

Cash vs Accrual Accounting

In cash accounting, you recognize income when it's received andexpenses when they're paid No attempt is made to match income to expenses

or to match either to the period of work Corporations with gross receiptsexceeding $5 million cannot use the cash method Accrual accountingrecognizes income when it's earned and expenses when they're incurred Itgives a more accurate description of a company’s economic condition but isalso more difficult to implement Construction companies can choosedifferent accrual methods for different projects

The percentage-of-completion method is generally the required

method of financial and tax accounting of larger construction companies forlong-term contracts Its justification relies largely on the matching principle in

accounting, where revenues and expenses are matched in the applicableaccounting period.

The percentage-of-completion method attempts to recognize revenuesand gross profit in the applicable periods of construction, and not soley in theperiod when the construction has been completed, as in the completedcontract method The degree of completion of the construction, i.e., thepercentage-of-completion, is typically estimated by dividing the totalconstruction costs incurred to date by the total estimated costs of the contract,

Gross profit to date = % complete X Total estimated gross profit

The journal entry required to recognize the current year's revenues orgross profit is the difference between total revenues or gross profit earned todate less revenues or gross profit recognized in prior years

Current year's gross profit = Gross profit to date - Gross profit in prior years

CHAPTER 2: CURRENT SITUATION OF COST ACCOUNTING

AND PRODUCT COSTING IN BAC MIEN TRUNG

CONSULTANCY INVESTMENT CONSTRUCTION AND

TRADING JOINT STOCK COMPANY 2.1 Overview about Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company

2.1.1 History and development of the Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company

Bac Mien Trung Consultancy Investment Construction and Trading JointStock Company was established in March 27, 2007 in form of a privateenterprise, with total chartered capital of 2.0 billion VND Over many years

of operating with increasingly large-scale

Below is the detail of company

- Address: Ecotourism park Ho Kim Quy, Ham Rong Street, Thanh HoaCity, Thanh Hoa

- Phone number: 0373729 955

- Fax number: 0373752 868

- Tax code: 2801039958 (27-03-2007)

- Authorized capital: 10.0 billion VND

Includes the following activities: (i) Installation and construction; (Ii)Design technical advice; (Iii) Trade The company's headquarters are located

in Thanh Hoa, and two branches in Hanoi and Ho Chi Minh City Staff ourmanagement of people with experience and foreign experience; and expertsand engineers in the field of industry leading consulting and construction andinstallation Our partners not only companies and corporations in Vietnam,but also with partners from Japan, Germany, France, Hungary, Korea

With almost 10 year operating business in Vietnam, BMT has earnedgreat reputation in construction field The organization's motto is “bringing

customer satisfaction through best quality service” BMT follows a neat

working process in 5 steps: consultation, proposal, detailed design,

construction, and maintenance Thanks to detailed working plan, BMT has

many loyal clients and so far the company has successfully finished projects

2.1.2 Business field and products

Bac Mien Trung Consultancy Investment Construction and Trading JointStock Company is a small enterprise mainly performing in construction field

The business activities of company focus on civil building construction, set

up many kind of housing, transport ways construction.Besides, company has a

(i) Installation and construction; (Ii) Design technical advice; (Iii)

2.1.3 Features of the organizational structure business activities in the

ing

Department

Chart 2.1- Organization Structure of the company

The legal representative is the Director who is assisted by a secretary.There are total 105 staff working for the company, including 5 managers, 10professional staffs, 85 manufacturing workers, and 15 sales personnel in store.Director is a person from a group of managers who leads or supervises aparticular area of a company, program, or project Companies that use thisterm often have many directors spread throughout different business functions

or roles (e.g director of human resources) The director usually reportsdirectly to a vice president or to the CEO directly in order to let them knowthe progress of the organization Large organizations also sometimes haveassistant directors or deputy directors Director commonly refers to the lowestlevel of executive in an organization, but many large companies use the title

of associate director more frequently

Deputy Director will have both internal and external facingresponsibilities, ranging from client and project management (businessdevelopment, framing of key approaches, high-quality client delivery, writtenproducts) to administration (information technology, reporting, facilities), andhuman capital (HR/recruiting, mentoring, career progression)

Personnel and labour Department : oversees the organization's humanresources requirements; including employee on-boarding, managing andadministering health and other employee benefits, maintaining personnelrecords, monitoring insurance coverage and ensuring that personnel policiesare up-to-date

Planning Department a basic management function involvingformulation of one or more detailed plans to achieve optimum balance ofneeds or demands with the available resources The planning processidentifies the goals or objectives to be achieved, formulates strategies toachieve them,arranges or creates the means required, and implements, directs,and monitors all steps in their proper sequence.

Quality manage Department aim to ensure that the product or service anorganisation provides is fit for purpose, is consistent and meets both externaland internal requirements This includes legal compliance and customerexpectations

Accounting Department : Most people don’t realize the importance ofthe accounting department in keeping a business operating without hitchesand delays That’s probably because accountants oversee many of the back-office functions in a business — as opposed to sales, for example, which isfront-line activity, out in the open and in the line of fire

2.1.4 Accounting system

2.1.4.1 Structure of Accounting Department

There are five people in Accounting Department include one chiefaccountant and four other accountants

Chief Accountant

Chart 2.2 – Organization structure of Accounting Department

Chief Accountant is in charge of the overall performance of theaccounting department She monitors the implementation of the norms oflabor, wages, supplies , and completes accounting reports

In terms of Accountant for payment, the mission of accountant forpayment is recording, collecting information about cash in bank of company

At the end of the month, the accountant calculating wages and socialinsurance for employees and completing one report of “Allocating wages andsocial insurance”

In terms of Cashier, the role of cashier is keeping, receiving and payingcash She collects delivery notes and vouchers in last month

The work of General accountant is summarizing all the financialinformation based on basic data which is given by other accountants, thencalculating the expense and cost of product (cost construction) and declaringtax per month to Tax Department

2.1.4.2 Accounting form and regime apply

Bac Mien Trung Consultancy Investment Construction and TradingJoint Stock Company applies the accounting form of General Journal Mostbookkeeping is now being recorded and saved in computer system

There are many main features about accounting activities of thecompany All accounting activities of the company comply with theVietnamese Accounting System for small and medium enterprises according

to Circular 200/2014/TT-BTC by the Ministry of Finance Accounting periodranges from 01/01 to 31/12 every fiscal year The currency unit is Viet NamDong VAT calculating method is VAT deduction method.

Method of inventory measurement is perpetual method

And Depreciation method is Straight-line method

2.1.4.3 System of accounting books

BOOK-KEEPING

GENERAL

JOURNAL

SUMMARY TABLES

GENERAL

LEDGER

BALANCE SHEET

FINANCIAL

Chart 2.3 - Book-keeping system

(1) Daily record (2) Record at the end of the month (3) Collate and check

Basing on daily accounting vouchers (source vouchers, summary tables

…), the accountant will collect all vouchers reflecting occurred transactionsand make journal entries in General Journal Then, according to the datawhich is recorded in General Journal, the accountant must record eachtransaction in Ledger basing on account code and Detailed Lists At the end

of each month, the accountant compares the General Journal and DetailedLists If they are equal, the accountant will prepare Trial Balance At the end

of each year, Financial Statements are prepared from data collected in Ledger,General Journal and Trial Balance

Chart 2.4 - Book-keeping in computer system

DETAILS BOOK

FAST ACCOUNTING

ACCOUNTING

VOUCHERS

FINANCIAL STATEMENT

COMPUTER

SUMMARIZING

TABLES

When receiving the accounting vouchers, the accountant opened theaccounting software on the computer and updated the data on the tables usingthe available in software, then the computer will auto update the data toprepare the financial statements

2.1.4.4 System of accounting vouchers used

There are many types of vouchers are used by the company They are:receipt vouchers, payment vouchers, payment request…(for cash); fix assetscount sheet, calculation and allocation of fixed assets depreciation (for fixedassets); goods receipt notes, goods dispatch notes…(for inventory); andPayroll slip, bonus payment sheet, time sheet, list of payment withheld fromsalaries, list of allocation of salaries and social insurance (for wages andsalaries)

2.1.4.5 System of Financial Statement

There are four types of financial statement are used: Balance Sheet,

Income Statement, Cash Flow Statement and Notes on Financial Statement

2.2 Current situation of organizing cost accounting and product costing

in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company

2.2.1 The actual situation in Bac Mien Trung Consultancy Investment Construction and Trading Joint Stock Company