Accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company

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Accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company

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TABLE OF CONTENT DECLARATION i ACKNOWLEDGEMENT ii ABSTRACT iii LIST OF ABBREVIATIONS vii LIST OF TABLES AND FIGURES viii INTRODUCTION 1 CHAPTER 1LITERATURE REVIEW 5 1.The necessity of realizing importance of accounting in collecting production cost and calculating cost of finished goods. 5 1.1. The necessity of realizing the importance of accounting in collecting production cost and calculating cost of finished good. 5 1.2. Requirements in managing production cost and cost of finished goods. 6 2. Production cost and cost of finished goods 7 2.1. Production cost and the classification of production cost. 7 2.1.1.The nature of production cost. 7 2.1.2.Classification of production cost 8 2.2.Cost of finished goods and the classification of cost of finished goods. 11 2.2.1.The nature of cost of finished good. 11 2.2.2.Classification of cost of finished goods. 11 2.3.The relationship between production cost and cost of finished good. 13 3. Accounting in collecting production cost 13 3.1.The subjects collected in accounting production cost 13 3.2.The methods used in accounting production cost 14 3.2.1.Accounting for production cost in companies applying perpetual inventory method. 14 3.2.2.Accounting for production cost in manufacturing firms applying periodic inventory method. 21 4. Accounting in calculating cost of finished goods 23 4.1. Accounting for cost of finished goods in manufacturing applying perpetual inventory method. 23 4.2. Accounting for cost of finished goods in manufacturing firms applying periodic inventory method. 24 CHAPTER IITHE STUDY 26 1. Some information about Hapro Vodka Joint Stock Company. 26 1.1. The history of company. 26 1.2.The company ’s typical characteristics in production. 27 2. Collecting production cost in the company. 30 2.1.Characteristics of production cost in Hapro Vodka Joint Stock Company. 30 2.2. The charecteristic of manufacturing technological process in Hapro Vodka Joint Stock Company. 31 2.3. Methods used in collecting production cost by company 33 2.3.1.Accounting for direct raw material cost 33 2.3.2Accounting for direct labor cost 40 2.3.3.Accounting for Manufacturing overhead cost . 45 2.3.4.The general sequence of collecting production cost process 51 3.Calculating cost of finished good 52 3.1.The subjects of calculating cost of finished goods 52 3.2.The method used in calculating cost of finished good. 52 CHAPTER IIIRECOMMENDATIONS 58 1.Advantages in collecting production cost and calculating cost of finished good. 58 2.Disadvantages in collecting production cost and calculating cost of finished good in Hapro Vodka Joint Stock Company. 59 3.1.Improving Solutions of used accounting books. 62 3.2. Improving Solutions of accounting methods 62 3.2.1.The direct labor cost 62 3.2.2. Accounting for manufacturing overhead cost 63 CONCLUSION 64

1 GRADUATION THESIS 2014 DECLARATION I hereby declare that this thesis is the presentation of result of my own research during the time of internship in Hapro Vodka Joint Stock Company and has not been submitted for a degree to any other universities or institutions To the best of my knowledge, the thesis does not contain material previously published or another people, except where due acknowledgement is made in the text The data and results described in this thesis are derived from the actual situation of the practice company Hanoi, May 21st , 2014 Student Dinh Thi Trang DINH THI TRANG - CQ48/51-04 Page GRADUATION THESIS 2014 ACKNOWLEDGEMENT This thesis would not have been possible without the support of many people First and foremost, I would like to express my profound gratitude to my supervisor Cao Xuan Thieu, M.A, who has continuously encouraged me to develop my savvy of the subject Without his motivation, enthusiasm and intensive expertise, this thesis could not be completed I also wish to express my sincere thanks all teachers in Foreign Language Faculty at Academy of Finance for their directions, correction and comments during the course of my writing It would be a shortcoming if I not mention here the Board of Directors and staff in Hapro Vodka Joint Stock Company ,who enthusiastically provided me with information ,data and materials data to use in my graduation thesis Finally, I would like to show my deep gratitude to my parents for their care, support, encouragement, without which my thesis would not have been accomplished DINH THI TRANG - CQ48/51-04 Page GRADUATION THESIS 2014 ABSTRACT My thesis with the topic:Accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company ” will point out the current situation and solutions to improve accounting activity in Hapro Vodka Joint Stock Company The study starts with the introduction by giving a rationale for the study, pointing out aims, scope and methods of the study Chapter I presents the study’s literature review It elaborates on the issues relevant to the study including the nature and classification of production cost and cost of finished goods as well as methods used in collecting production cost and calculating cost of finished goods Chapter II analyses the reality of accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company Chapter III summaries the results of study and gives recommendations for improving the effectiveness of accounting for production cost DINH THI TRANG - CQ48/51-04 Page GRADUATION THESIS 2014 TABLE OF CONTENT DINH THI TRANG - CQ48/51-04 Page GRADUATION THESIS 2014 LIST OF ABBREVIATIONS C: Total current manufactured costs Ci: Cost allocated to each subject Cdk:Production cost at beginning of term Cck:Production cost at ending of term Ddk: Beginning work in process Dck: Ending work in process inventory GAAP: General accepte accounting H: Allocation coefficient SG & A: Selling, General and Administrative Expenses VND: Vietnamese dong Z BTP gdi:Unfinished cost in period i z :Unit cost DINH THI TRANG - CQ48/51-04 Page GRADUATION THESIS 2014 LIST OF TABLES AND FIGURES DINH THI TRANG - CQ48/51-04 Page INTRODUCTION 1.Rationale of study Under market economy, enterprises have to meet demands set up by market if they want to survive and develope In other words,they must compliance supply-demand,value as well as competitive rule.To make sure that their products can be appropriate in the market ,companies need to promote market researchs ,frequently make changes in product sample,raise product quality whereas product ’s price is lowered.According to some economists,using and managing production cost effectively are key factors to achieve those goals.All types of business whether service ,manufacturing or trading require cost accounting to track their activities Especially ,in manufacturing business,production accounting has long been used to help managers understand the cost of running a business Modern cost accounting originated during the industrial revolution ,when the complexility of running a large scale business led to the development of systems for recording and tracking cost to help business owners and managers make decisions Exactly,timely accounting production cost help business come up with solutions to save expenses and reduce cost of finished goods In the scope of whole economy ,decreasing cost of finished goods can create an increase in the accumulation for the economy Hence,not only is reducing cost of finished goods necessary for enterprises but that also is society’s concern Collecting production cost and calculating cost of finished goods in the accordant way is the base for business in accounting cost of finished goods that is decisive factor for defining business result.In addition,the board of directors can obtain important information that is really useful for DINH THI TRANG - CQ48/51-04 Page companies in setting up suitable strategies to make effective use in their capital Hapro Volka Joint Stock Company specializes in producing and trading alcohol.After a period of operating time, company has achieved appreciable success ,however,the standing challenge that company has to face is competition from domestic and foreign products Therefore,reducing cost of finished goods ,increasing competitive capacity are the two most important targets that company should focus on In the practicing process at company ,with the help of accountants and staff in company and the supervisor ,I have had oppotunity to study ,analyse and complete thesis: “Accounting in collecting production cost and calculating cost of finished good in Hapro Vodka Joint Stock Company”.However ,because of the limit in practicing time as well as in my knowledge and experience ,there still is deficiency in this thesis.With the desire to complete this thesis ,I hope to see comments from teacher and accountants from Hapro Vodka Joint Stock Company 2.Aims of study The main aims of study are: Firstly,The study is expected to contribute to the background theory of accounting for production cost and calculating cost of finished good,which is done by pointing out characteristics and methods used in accounting Secondly,It shows achievements and difficulties of accounting for production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company as a case for study DINH THI TRANG - CQ48/51-04 Page Thirdly,it suggests possible solutions and recommendations to improve accounting for production cost and calculating cost of finished goods Finally,To become an useful reference for the later generations in order to support for their reseaches about accounting in general and accounting for production cost in particular 3.Subjects and scope of the study 3.1.Subjects of the study The study focuses on general understanding of accounting as well as the activity of accounting for production cost in both situation and solutions 3.2.Scope of the study Research scope only focuses on Accounting for production cost and calculating cost of finished good in Hapro Vodka Joint Stock Company in period 2011-2013 4.Methodology The main method used in this research is analyzing and summarizing reliable materials to form trustful and concise theoretical background.For stronger support ,I also illustrate with numbers ,figures,chart and facts The other method applied in this thesis is document review A textbook of ACCA (F3) and its translation for difficult terms , Academy of Finance will be reviewed and evaluated 5.Organization The study is divided into three parts: DINH THI TRANG - CQ48/51-04 Page * The first part is the introduction dealing with the rationale ,aims,methods,scope,organization and significance of the study * The second part is the crucial part of the thesis with three chapters: Chapter 1: LITERATURE REVIEW.This chapter provides the basic theories about accounting in collecting production cost and calculating cost of finished goods in manufacturing companies Chapter 2:THE STUDY.This chapter presents the reality of accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company Chapter 3:RECOMMENDATIONS.This chapter suggests some solutions to improve accounting in collecting production cost and cost of finished goods in Hapro Vodka Joint Stock Company DINH THI TRANG - CQ48/51-04 Page 10 Table 7: General Ledger Account 627 – Factory Overhead Cost December,2013 Vouchers Amount Date Description N Account D Debit Credit Beginning balance PB01 31/12/2010 PB02 31/12/2010 PB03 31/12/2010 Allocation wage and related insurance for employees in factories social Allocation for prepaid expenses and supplies in factories 334 2,400,000 338 600,000 152 697,861 153 1,530,000 …… Allocation for prepaid expenses ,supplies in factories PB04 31/12/2010 …………… 214 3,004,652 MH01 31/12/2010 Allocation for depreciation 111 254,365 MH02 31/12/2010 Paying electricity expense 111 183,750 PB05 31/12/2010 Paying materials expense 15422 1,129,742 PB05 31/12/2010 15423 1,315,494 PB05 Allocation manufacturing overhead cost for alcohol production 31/12/2010 15424 3,725,301 15425 2,500,091 PB05 31/12/2010 Allocation manufacturing overhead cost for wine dilution Total amount 8,670,628 8,670,628 Closing balance December 31st ,2013 2.3.4.The general sequence of collecting production cost process DINH THI TRANG - CQ48/51-04 Page 62 The total production cost occurring in term in Hapro Vodka Joint Stock Company are collected in following three item: -The direct materials cost (Account 621) -The direct labor cost (Account 622) -The manufacturing overhead cost (Account 627) These three items are summated at the end of month to calculate cost of finished good Used Accounts:Because HaproVodka Joint Stock Company applies perpetual inventory method,the account used in collecting production cost in the term is 154-Work in progress Account 15422: Detail for alcohol manufacturing department Account 15423: Detail for dilution department Account 15424: Detail for filter department Accunt 15425: Detail for finishing department Accounting Process: At the end of month,after production cost that occured in the month have collected ,accountants transfer accounts 621,622,627 into account 154(Detail for each department) 3.Calculating cost of finished good 3.1.The subjects of calculating cost of finished goods The objects of calculating cost of finished good in Hapro Vodka Joint Stock Company are:semi-finished products or finished products in the term 3.2.The method used in calculating cost of finished good DINH THI TRANG - CQ48/51-04 Page 63 Hapro Vodka Joint Stock Company applies step method co;mbining calculating semi-finished products,according to the following diagram Cost of semifinished product in = Materials + expense Manufacturin g expense Value in progress In the first step The first step Cost Cost of semi – finished product in the of semi= second step Value in progress finished product in the + Manufacturing expense - in the second step first step …… Cost of Cost of semi- semi- finished finished product in the = nth step product in + the (n-1)th Manufacturing expense n Value in - progress in the nth step step From the diagram,we can calculate cost of finished good in periods by the following steps: DINH THI TRANG - CQ48/51-04 Page 64 Table 8: Calculation For Cost Of Finished Goods Product : KAI alcohol Amount : 495 litres December,2013 Order Items Direct C®k1 Cps1 Cck1 Z BTPg®1 z 12,400,000 400,000 12,000,000 24,242 10,000,000 20,202 400,000 2,000,000 4040 Materials cost 10,000,000 Main materials 2,400,000 Fuel Direct labor 656,250 656,250 1,326 1,129,742 1,129742 2,282 14,185,992 13,785,992 27,850 cost Manufacturin g overhead cost Total 400,000 December 31st ,2013 DINH THI TRANG - CQ48/51-04 Page 65 Table 9: Calculation For Cost Of Finshed Goods Product:Unfinished wine Amount: 1207 litres December,2013 Order Items Direct Z BTPg®1 C®k2 Cps2 Cck2 Z BTPg®2 z 12,000,000 13,985,750 25,985,750 21,529 material cost Main 10,000,000 13,785,750 23,785,750 19,707 2,000,000 200,000 2,200,000 1,823 materials Flavour labor 656,250 766,875 1,423,125 1,179 Manufacturing 1,129742 1,315,494 2,445,236 2,026 13,785,99 16,068,119 29,854,111 24,734 Direct cost overhead cost Total December 31st ,2013 DINH THI TRANG - CQ48/51-04 Page 66 Table 10: Calculation For Cost Of Finshed Goods Product : Filtered Wine Amount: 1203 litres December,2013 Orde Items Z BTPg®2 C®k3 Cps3 Cck3 Z BTPg®3 z ®¬n vÞ 25,985,750 200,000 29,853,938 56,039,688 46,583 23,785,750 200,000 29,853,938 53,839,688 44,755 2,200,000 1,829 r Direct materials cost Main materials 2,200,000 Flavour labor 1,423,125 763,750 2,186,875 1,818 Manufacturing 2,445,236 3,725,301 6,170,537 5,129 29,845,111 200,000 34,342,989 64,397,100 53,530 Direct cost overhead cost Total December 31st,2013 Recoder DINH THI TRANG - CQ48/51-04 Chief Accountant Page 67 Table 11: Calculation For Cost Of Finished Goods Product: Finished Wine Amount : 1716 bottles December,2013 Orde Items Z BTPgd3 Ck4 Cps4 Cck4 Z z 56.039.688 74,556,790 130,596,478 76,105 Main materials 53,839,688 73,668,790 127,508,478 74,305,6 Direct labor 2,200,000 888,000 3,088,000 1,799.4 Manufacturing 2,186,875 1,187,500 3,374,375 1,966 Other expense 6,170,537 2,500,091 8,670,628 5,053 Total 64,397,100 200,00 78,244,381 142,641,481 83,124.4 r Direct materials cost cost overhead cost December 31st ,2013 Recorder DINH THI TRANG - CQ48/51-04 Chief Accountant Page 68 CHAPTER III-RECOMMENDATIONS SOME SOLUTIONS IN IMPROVING ACCOUNTING IN COLLECTING PRODUCTION COST OF FINISHED GOOD IN HAPRO VODKA JOINT STOCK COMPANY Through practicing and researching process in Hapro Vodka Joint Stock Company,I had a good oppotunity to assess and study wine production process as well as the reality of accounting in collecting production cost and cost of finished goods ,I have found some existing advantages and disadvantages: 1.Advantages in collecting production cost and calculating cost of finished good -Accounting for production cost in the company is carried out in the suitable way that is well matched with typical characteristics of product manufacturing technology process at each stage.Thus ,they can determine objects collected production cost at each stage.In the chapter 2,I have presented: +In the first stage:producing raw alcohol +In the second stage:producing alcohol -Accounting for production cost in the company has applied regulations on accounting and the current accounting standards adopted by State in the right way DINH THI TRANG - CQ48/51-04 Page 69 -Accounting for production cost in the company has been implemented uniformly,that is the uniformness between managerial targets and accounting targets,between accounting methods and voucher rotation sequence However,there are some shortcomings existing in accounting for production cost and calculating cost of finished good that need improving 2.Disadvantages in collecting production cost and calculating cost of finished good in Hapro Vodka Joint Stock Company *The limitations in administrative procedure -Accounting for collecting production cost at each stage of manufacturing process but accountants in the company take data from the detailed books of accounts:The direct material cost is taken from account 621,the direct labor cost is taken from account 622,the manufacturing overhead cost is taken from accoount 627 This is acceptable in the case :in the whole manufacturing period,the company produces only one kind of products,however,if in the manufacturing term,the kinds of products are various ,the collecting of production cost is really complex,difficult and waste time *The limitations in accounting expense -The direct labor cost:Hapro Vodka Joint Stock Company applies payment form basing on assigned number of product.However,the company also applies payment form in which employee can be paid 70% of wage for prescribed days off or vacation.However,in the study process in the company I have found that the company has not left provision for days off.Therefore,cost of finished good can be directly influenced in the working month that has a huge number of days off DINH THI TRANG - CQ48/51-04 Page 70 -From the reality of wine production in Hapro Vodka Joint Stock Company,We can see:Manufacturing process in the company is divided into many stages and in each stage,the different machinery and technology are used Thus,allocation of manufacturing overhead for each manufacturing stage is not reasonable and not exactly reflecting the objects incurring expense From the above limitations in accounting for production cost in Hapro Vodka Joint Stock Company,I am courageous to give some solutions in order to improve accounting production cost in the company 3.Some perspectives in solving limitations In business management ,production cost and cost of finished good are the two most important economic targets that always are interested by CFO or CEO in the company because they are popular targets reflecting production operation quality in the company.By analysing information about production cost and cost of finished good supplied by accounting department ,business managers can have clear reception of production cost and the use of propety,supplies and capital that is necessary for them in making cost estimation and strategic managerial decisions to raise competitive capacity in the business market With that role,accounting for production cost has become necessary and sufficient condition in every manufacturing firms.It is the key stage in accounting in every business in general and in manufacturing firm in particular It is very urgent for the company to have innovation and improvement in accounting system to ensure consistency ,uniform in supplying information for business management and control Being a part in DINH THI TRANG - CQ48/51-04 Page 71 accounting system,accounting for production cost has been asked to increasingly innovate and complete to meet demands of the current business environment In fact,there are many companies making accounting for production cost in the inappropriate way.In accounting process ,they give unreasonable expenses into cost of finished good in the accounting term ,therefore,the result they achieve at the end of period is not highly appreciated All of expenses incurring in manufacturing process,such as:direct materials cost,direct labor cost ,manufacturing overhead cost,long-term prepaid expenses are collected and allocated when calculating cost of finished good at the end of period ,however,there is no clear distinction between fixed costs and variable costs That is the reason why the analysis of the fluctuation of factors having directly impact on cost of finished good is more difficult From these reasons,the innovation in accounting system is an objective requirement that is perfectly fit with the general rules and the management reality in firms.Especially,in the market mechanism ,under pressure of fierce competition companies have to cut down production cost and cost of finished good and simultaneously enhance product quality.In other words,the company should innovate accounting for production cost to make leaders easier in making future business decisions in order to company’s products have competitive condition with that of other companies After reseaching and practicing time in Hapro Vodka Joint Stock Company and by the knowledge obtained throgh four years studying at Academy Of Finance ,I courageously give some personal opinions with the DINH THI TRANG - CQ48/51-04 Page 72 purpose of completting accounting for production cost system in the company 3.1.Improving Solutions of used accounting books Accounting for production cost should use “manufacturing –business book” (Code:S36-DN,adopted by Minister of Finance in 20/03/2006 according to QĐ 15/2006/QĐ-BTC ) in each stage of manufacturing process.Particularly,in production process of Vodka 39%: -The company needs to increasingly widely apply information technology in calculating cost of finished good.They should give specialized software into accounting cost of finished good in order to timely meet managerial requirements 3.2 Improving Solutions of accounting methods 3.2.1.The direct labor cost I have presented in the chapter that:The company should leave provision for direct labors in days off The provision is determined : Provision =The coefficient of basic salary If the company leave provision for days off ,accountants will record: Debit Account 622: The direct labor cost Credit Account 335: Accruals When ,provision incurrs,accountants record: Debit Account 335: Accruals Credit Account 334: Payables to employees DINH THI TRANG - CQ48/51-04 Page 73 In Hapro Vodka Joint Stock Company,payables to employees are not established.In the case,the company makes loss and has to stop production ,payables to employees is taken from business capital,therefore,the company’s ability in raising capital will be directly affected.In my opinion,Hapro Vodka Joint Stock Company should establish reserved wage fund to pay for employees when company has to face with challenges and their wine production is stopped 3.2.2 Accounting for manufacturing overhead cost To reflect manufacturing overhead cost more precisive ,the company should directly records cost by opening detailed account 627 in each stage: Account 6271- Indirect labor Account 62711- Indirect labor in the first period Account 62712- Indirect labor in the second period Account 6271.n Indirect labor in period n Account 6272 – Use of auxiliary materials -Account 6272.1 – Use of auxiliary materials in the first period Account 6272.n – Use of auxiliary materials in the period n Account 6273- Use of tools and supplies – opening detail in a similar way for each stage DINH THI TRANG - CQ48/51-04 Page 74 CONCLUSION During three months of internship in Hapro Vodka Joint Stock Company,I had precious oppotunity to study and complete the thesis with the topic: “Accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company”.In the process of finishing this research I was facilitated to access departments such as :accounting department,manufacturing factory,marketing department In fact,it is clear that accounting for production cost and calculating cost of finished goods are the two most important missions that every companies have to implement if they want to survice and develope.Therefore,cutting down production cost and increasing product quality should be the most pressing concern of leaders ,especially,in the current situation ,company’s products have been under pressure of competition with other foreign products.Timely realizing this problem ,Board of Directors ,departments,workshops as well as accounting department have put strong effort in coming up with effective solutions to lower production cost ,cut down cost of finished goods but product quality has been appropriate Overall,accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company has obtained certain achievements,however,there still are some shortcomings that need overcoming DINH THI TRANG - CQ48/51-04 Page 75 Finally,I want to take this oppotunity to express my sincere thanks to Board of Directors and all staff in the company,who help me to complete this thesis.In this working enviroment,I had chance to apply my accounting and financial knowledge that I used to study at university in reality.I am very proud to say that “Accounting in collecting production cost and calculating cost of finished goods in Hapro Vodka Joint Stock Company” is the result of long time of learning and practicing at Academy of Finance and Hapro Vodka Joint Stock Company Ha Noi,May 21st ,2014 The Student Dinh Thi Trang DINH THI TRANG - CQ48/51-04 Page 76

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