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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”.
Graduation thesis Aggregating production costs and evaluating unit cost Acknowledgment As this is the first time I have written this piece of academic writing, this paper would not have been completed without the assistance of several people I would like to take this opportunity to acknowledge their contribution My most heartfelt thanks must go to Prof Dr Dang Van Thanh who supervised me in writing this thesis I wish to express my special thanks to Mr Huyen – Chief accountant and all other members in the accounting department of Huong Giang construction company for providing me information, material that makes up this thesis My sincere thanks go to all the teachers at Accounting and Finance at Phuong Dong University for their encouragement and reviewing the thesis Finally, I am also deeply grateful to my family and friends for their support and suggestions Ha noi, 2006 Dang Thi Lan Anh dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost Introduction 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” The thesis includes three main chapters as follows: dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost 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 and evaluating unit cost will be discussed It includes major issues as follows: • Concept of production costs and unit cost, classification and relationship between production costs and unit cost • The tenor of aggregating production costs • Estimation of work in progress • Method of evaluating unit cost Production cost and classification of production costs in construction company: 1.1 Definition: Production costs represent the moneytary value of resourses used such as labour materials, overhead incurred in production process that form the product of construction unit cost in a given period of time 1.2 Classification: Production costs can be classified in many ways depending on goals and requirements of management In calculating, there are some ways to classify production costs on the basis of: dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost 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 are futher divided into these components: • Raw materials cost • Tools and supplies cost • Fuel and oil cost • Labour cost • Depreciation of fixed assets • Render – services • Other expenses in cash This classification shows the structure and percentage of each cost component It is the basis of making production costs statements following elements and 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 in one component, it does not distinguish economic content of costs Production costs 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 to evaluate unit cost, analyze the implementation of planned unit cost and making production costs estimation for next period 1.2.3 Classification of production costs on the basis of method of aggregating production costs: dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost 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 making products to set up suitable method of aggregating production costs 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 Estimation of cost = Cost to finish the estimation volume of construction + Normed profit Unit cost is a part of estimation cost that rounds up direct costs and indirect costs following the finished volume of construction In accounting and management, unit cost of construction product can be classified as follows: 2.2.1 Cost price of construction work: dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost Cost price of construction work includes all the production costs to finish volume of construction following the estimate Cost price of construction work = Estimation of cost Normed profit - Or : Cost price of construction work = Volume of works following the economic and technique norms are determined by Goverment x Unit price is announced by Government for each construction area and other normed costs Cost price of construction work is formed and existed in a given time It’s evaluated in medium conditions of construction production, management organization, materials and labour expenses for each kind of work or for a specific work Cost price of construction work is sequently stability 2.2.2 Planned unit cost: Planned unit cost is evaluated on the basis of specific conditions features of one construction company in a given planned period Therefore, planned unit cost is an index that business try to reach in order to achieve the profit level thanks to decreasing unit cost in planned period It reflects the standard of company ‘s unit cost management Planned unit cost = Cost price Profit base on - decreasing unit cost +(-) Difference from estimate 2.2.3 Assessed unit cost: Assessed unit cost is the total expenses that cost to end a volume of construction It is calculated on the basis of structural feature, method of building organization and management following costs norms that achieved at the beginning of construction dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost Thus, assessed unit cost will changed following fluctuation method of management and organization of construction or fluctuation structural feature So, it is recomputed to be suitable 2.2.4 Actual unit cost: Actual unit cost is the total costs incurred in construction process that is aggregated 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 unit cost includes all costs incurred that means covering normed costs and extra costs In short, in order to determine accurately the quality of construction operation, it is need to compare those unit costs • Comparing actual unit cost with planned unit cost shows the decreasing level of planned unit cost • Comparing actual unit cost with estimation of unit cost reflects the accumulation index to expect the company ability in next period • Comparing actual unit cost with assessed unit cost shows the finished norms level of each specific volume of construction The relationship between production costs and unit cost Production costs and unit cost are two different terms of production process Production costs reflect the moneytary value that company cost in process and 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 the unit cost of construction product Thus, production costs and unit cost have closed relationship Production costs 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 dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost Finally, management of unit cost must be linked to production costs management The scheme of relationship between production costs and unit cost: Costs in progress at the beginning Total of unit cost of finished products Total of unit cost of finished products = Costs create in process Costs in process at the ending Costs in progress Costs create + in progress at the beginning - Costs in process at the ending 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 of costs which accountant has to aggregate to satisfy the requirements of checking and supervising the costs in building process In order to accurately determine costs objective, accountant has to base on features of production costs and the use of cost in production • The objects of aggregating production costs may be the whole technological process or each specific stage fluctuation to production mechanism organization, requirement and standard of economic management and internal accounting requirements • Following production process, product characters, the requirement of evaluating unit cost, the costs objective may be each group of products or each kind of products, or each component or details group, detail of product In construction, product is specific so that the objects of aggregating production costs may be the customer’s order, each construction, part of building or group of buildings, as usual Aggregating production costs to adequate objects gives a good assistance to production costs and manufacture administration, to internal and the whole dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost accounting of company Besides, it helps timely and accurately evaluating unit cost 4.2 Aggregating production costs method: 4.2.1 Aggregating and allocating direct raw materials cost: Direct raw materials costs are costs of major materials, semi – finished product, auxiliary materials, fuel oil used directly in manufacturing products Direct raw materials costs are usually aggregated following direct method It is applied for direct raw materials costs that are only concerned in only one cost objective If direct raw materials costs are concerned in many objects of aggregating production costs, accountant has to use indirect method That means accountant has to determine the reasonable bases to allocate direct raw materials costs by following formula: Costs allocate to object i General criterion of allocation x of object i Total costs to be allocated = General criterion of allocation of all objects To accurately aggregate direct raw materials costs, accountant has to pay attention to checking and evaluating the received materials but not using up and value of received spent materials to minus them out of direct raw materials costs Actual direct raw materials = costs Raw materials are used directly for producing process - The unused materials distributed for manufacturing are returned and stored - Value of received spent materials According to Financial Regulation issued by Ministry of Finance, in order to aggregate and allocate direct raw materials costs, account 621- “Direct raw materials” is used dang thi lan anh accounting and auditing Graduation thesis Aggregating production costs and evaluating unit cost Chart 01: Direct raw materials costs accounting A/C 152(611) A/C 621 A/C 152(611) Raw materials are used The unused materials directly for producing process distributed for manufacturing are returned and stored A/C 111,112,331 A/C 154(631) Raw materials are not stored Transferring actual direct and used immediately for producing products raw materials costs 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 in manufacturing Salaries includes basic wages, allowances, not includes social insurance (15%), trade union fees (2%), health insurance (2%) Direct labour costs are usually computed directly to each relating costs objective If direct labour costs involve in many objects that are not calculated directly, they could be general aggregated and allocated to costs objective 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 following the concretely condition According to Financial Regulation issued by Ministry of Finance, in order to aggregate and allocate direct labour costs, A/C 622- “Direct labour costs” is used It can be opened sub – accounts depending on the features of operating activities dang thi lan anh accounting and auditing 10 Graduation thesis Aggregating production costs and evaluating unit cost Production cost accountant Chief accountant (Signature,name) (Signature,name) Supplement No.18 : Subsidiary ledger A/C 627 Factory overhead costs Construction : N18 – Political Institute Voucher No Date 110 112 167 84 Explanation 5/10 7/10 25/10 31/12 Protective clothes Shovels Depreciation costs Transferring costs to Opposite Amount Debit Credit accounts 153 153 214 154 600.000 450.000 4.233.000 92.780.570 evaluate unit cost Total 92.780.570 92.780.570 Supplement No.19 : Subsidiary ledger A/C 154 Construction : N18 – Political Institute Voucher No Date 35 Explanation Opp Amount Debit A/C 621 875.234.720 621 Credit 534.921.822 31/1 Transferring direct raw materials costs to evaluate 31/1 unit cost Transferring direct raw materials costs to evaluate 84 31/1 unit cost Transferring direct labour 622 227.000.000 84 31/1 costs to evaluate unit cost Transferring equipment costs 623 22.904.000 84 dang thi lan anh accounting and auditing 64 Graduation thesis Aggregating production costs and evaluating unit cost to evaluate unit cost Transferring factory 84 31/1 overhead costs to evaluate unit cost Transferring to A/C 632 Total 627 92.780.570 632 1.752.841.11 1.752.841.112 1.752.841.11 dang thi lan anh accounting and auditing 65 Graduation thesis Aggregating production costs and evaluating unit cost Phuong Dong University Socialist republic of Viet Nam Finance and Accounting Faculty Independence – Freedom – Happiness Comment on graduation thesis Subject : accounting for Aggregating production costs and evaluating unit cost in Huong Giang company Author : Dang Thi Lan Anh Code : 643001 Mark : Ha Noi , 2003 Commentator Phuong Dong University dang thi lan anh Socialist republic of Viet Nam accounting and auditing 66 Graduation thesis Aggregating production costs and evaluating unit cost Finance And Accounting faculty Independence – Freedom – Happiness Huong Giang company’s comment Subjec: accounting for Aggregating production costs and evaluating unit cost in Huong Giang company Author : Dang Thi Lan Anh Code : 643001 Supervisor : Pro Dr Dang Van Thanh Comment Ha Noi , .2003 Contents acknowledgement Page Introduction Chapter I: General theories of aggrgating production costs and evaluating unit cost in construction companies dang thi lan anh accounting and auditing 67 Graduation thesis Aggregating production costs and evaluating unit cost Production costs and classification 1.1 Definition 1.2 Classification 1.2.1 Classification of production costs on the basis of economic 3 3 content and nature of costs 1.2.2 Classification of production costs on the basis of purpose and utility of costs 1.2.3 Classification of production costs on the basis of method fo aggregating production costs Unit cost of construction product and classification 2.1 Definition 2.2 Classification 2.2.1 Cost price of construction work 2.2.2 Planned unit cost 2.2.3 Assessed unit cost 2.2.4 Actual unit cost The relationship between production costs and unit cost The objects and method of aggregating production costs 4.1 The objects of aggregating production costs in accounting 4.2 Aggregating production costs method 4.2.1 Aggregating and allocating direct raw materials costs 4.2.2 Aggregating and allocating direct labour costs 4.2.3 Aggregating and allocating factory overhead costs 4.2.4 Aggregating and allocating equipment costs 4.2.5 Aggregating production costs accounting Estimation of work in progress 5.1 In case that handing over when construction is whole finished 5.2 In case that handing over as each finished stage 5.3 In case that handing over as periodical finished product of each work or each structural part The objects and method of evaluating unit cost 6.1 The objects of evaluating unit cost 6.2 Evaluating unit cost period in capital construction 6.3 The method of evaluating unit cost 6.3.1 Evaluating unit cost by simple method 6.3.2 Evaluating unit cost by grand total costs 6.3.3 Estimating unit cost in comformity with customer’s order 6.3.4 Evaluating unit cost by assessment method 6.3.5 Evaluating unit cost by coefficient and percentage method Chapter II: Accounting practices on aggregating production costs dang thi lan anh accounting and auditing 4 5 6 7 7 9 12 14 16 16 17 17 18 18 18 18 18 19 19 19 20 68 Graduation thesis Aggregating production costs and evaluating unit cost and evaluating unit cost in Huong Giang company Production and business management organization 1.1 Foundation history of Huong Giang company 1.2 Production and management organization 1.2.1 Feature of technology production process 1.2.2 Production and business mechanism organization 1.3 Accounting machanism organization 1.4 Accounting policy applied in company 1.4.1 Accounting work 1.4.2 The accounting book system Aggregating production costs and evaluating unit cost in Huong Giang company 2.1 The objects and method of aggregating production costs 2.2 The objects of evaluating unit cost 2.3 Classification and management of production costs 2.4 Aggregating production costs in Huong Giang company 2.4.1 Accounting system used in the company 2.4.2 Aggregating production costs 2.4.2.1 Aggregating direct raw materials costs 2.4.2.2 Aggregating direct labour costs 2.4.2.3 Aggregating equipment costs 2.4.2.4 Aggregating factory overhead costs 2.4.3 Aggregating the whole production costs 2.5 Estimating of work in progress 2.6 Evaluating unit cost in Huong Giang company Chapter III: Solutions to enhance performance of accounting 21 21 22 22 23 24 25 25 26 27 27 27 27 28 28 28 28 29 31 32 33 33 34 division of the company in production costs aggregating and unit cost evaluating Comments of aggregating production costs and evaluating unit 35 cost accounting at Huong Giang company 1.1 Good aspects of carrying out production costs aggregation and 35 unit cost evaluation at Huong Giang company 1.2 Several weaknesses of Huong Giang company 36 Solutions to enhance performance of accounting division of the 37 company in production costs aggregating and unit cost evaluating 2.1 Raw materials accounting 2.2 Equipment costs 2.3 Method of estimation of finished product 2.4 Accounts system 2.5 The method of allocating factory overhead costs dang thi lan anh accounting and auditing 37 37 39 39 39 69 Graduation thesis Aggregating production costs and evaluating unit cost 2.6 Recording damage costs of production process 2.7 Payable expenses for labour costs on day’s leave accounting The conditions to develop effectively these solutions 3.1 Reorganization accounting works from general accounting to 40 42 42 42 detailed accounting 3.2 Apply computers in facilitating accounting work 3.3 Perfect the responsibility and quality of accountants Conclusion Supplements 43 43 44 45 Reference books Vietnamese Accounting System Coopers and Lybrand AISC Huong dan thuc hanh ke toan doanh nghiep xay lap va ke toan don vi chu dau tu TS Vo Van Nhi Principles of Accounting Belverd E Needles, Jr and Henry R Anderson and James C Caldwell Cost Accounting Rayburn, Letricia Gayle International Accounting Standards Hennie Van Greuning Marius Koen Vietnamese Standards on Accounting Ministry of Finance Thong Tu 89/2002/TT-BTC 09/10/2002 Accounting and Financial Concepts-BCO 400 Swinburne University of Technology And other materials dang thi lan anh accounting and auditing 70 Graduation thesis Aggregating production costs and evaluating unit cost Production and business mechanism organization Construction brigade Vice - Director Construction brigade Construction brigade Technical – Plan Division Construction brigade Construction brigade General Director Accounting – Financial Division Construction brigade Construction brigade Organization and Administration Division Construction brigade Construction brigade Construction brigade 10 Materials and machines Division Construction brigade 11 Construction brigade 12 dang thi lan anh accounting and auditing 71 Graduation thesis Aggregating production costs and evaluating unit cost Supplement No.20 : Lump – sump contract Construction : N18 – Political Institute October / 2002 Assignor : Nguyen Dong – The master of construction brigade Assignee : Tran Ngoc Huong - The leader of the road building group Unit : VND N Contents o Uni t Clearing Ground levelling Total m2 m2 Quantit Unit y pric 3000 620 e 400 3000 Task – work Total Time Startin Ending Implementation Quantit Total Time y Sign ending g 1.200.000 1.860.000 5/10 8/10 3000 620 3.060.000 1.200.000 1.860.000 5/10 8/10 3.060.000 Ha Noi , dang thi lan anh accounting and auditing 72 Graduation thesis Aggregating production costs and evaluating unit cost Assignee Assignor Supplement No.21 : Payroll Construction brigade Group : Nguyen Dong No Full name Wages per production volume Allowances Working Unit Total Ng.V.Vinh Tr.M.Hiep Le.V.Hoa Le.A.Tam Ng.T.Thuy dang thi lan anh October / 2002 Total First advance Deductions Amount Sign (6%) Second payment days 26 price 30.00 780.000 150.000 930.000 600.000 V 55.800 274.200 26 30.00 780.000 780.000 400.000 H 46.800 333.200 25 30.00 750.000 750.000 400.000 H 45.000 805.000 23 30.00 690.000 690.000 400.000 T 41.400 248.600 26 30.00 780.000 780.000 400.000 T 46.800 333.200 accounting and auditing 73 Graduation thesis Ng.D.Tiep Aggregating production costs and evaluating unit cost 26 30.00 780.000 780.000 400.000 T 213.290.00 213.440.00 110.176.00 46.800 333.200 0 13.620.000 89.644.000 Supplement No.22 : Fixed assets depreciation allocation table October / 2002 Unit : 1000VND No Assets Cost of fixed The company Net book Depreciati Accumulat value on ed assets I Construction A/C 623 N18 A/C 627 N18 A/C 642 N18 depreciatio n machinery dang thi lan anh accounting and auditing 74 Graduation thesis Bulldozer Concrete mixer Aggregating production costs and evaluating unit cost 110.000 441.120 1.042,2 4.146 72.482 142.635 37.518 1.042, 298.485 1.715 2.10 II Houses House Total 312.000 2.600 156.000 156.000 10.185.302 507.750 1.736.059 8.449.24 9.352 4.23 2.600 1.496,32 Bookeeper Chief accountant (Signature,name) (Signature,name) Supplement No.23 : Production costs collection table Construction : N18 – October / 2002 Unit : 1000VND No Cost items dang thi lan anh Raw Labour Maintenance 17% Tools Depreciation Rendered accounting and auditing Total 75 Graduation thesis Aggregating production costs and evaluating unit cost materials 1.410.156,542 services Direct raw 1.410.156,542 materials Direct labour Construction machinery Factory 30.000 45.021,1 overhead Total 1.411.520,54 264.830 1.496,32 45.021,1 227.000 1.364 7.830 9.352 2.861,68 227.000 22.904 1.800 4.233 11.726,47 92.780,57 1.800 13.585 1.496,32 14.588,15 1.752.841,112 Bookeeper Chief accountant (Signature,name) (Signature, name) Supplement No.24 : Production costs collection table ( Unit cost ) Year 2002 dang thi lan anh accounting and auditing 76 Graduation thesis No Aggregating production costs and evaluating unit cost Name of construction Direct raw Direct labour Construction N18 The management house of materials costs 1.410.156.542 693.430.473 costs 227.000.000 94.140.000 HG company Total 32.666.019.658 6.842.249.104 Equipment Factory costs overhead costs 22.904.000 92.780.570 31.634.000 34.811.627 2.576.831.997 Bookeeper 3.727.594.698 Total 1.752.841.112 854.016.100 45.812.695.457 Chief accountant (Signature,name) (Signature, name) Supplement No.25 : Production costs and unit cost Year 2002 Constructions dang thi lan anh Costs incurred in the period accounting and auditing 77 Graduation thesis Aggregating production costs and evaluating unit cost N Costs of Raw Labour Equipmen Factory o work in materials costs t costs progress costs Total Costs of Costs of overhead work in constructi costs progress on sale at the at the beginnin ending g National road 3.836.788 266.428.1 5.616.170 1.628.725 3.987.445 1A National road 845 00 223 45 669.846.3 779.980.77 168.565.3 96.970.474 118.370.8 613 1.163.887 000 1.194.066 613 639.667.64 18 National roasd 16 00 235.722.2 251.295.42 30.195.50 HG’s 67 house Construction 1.410.156 N18 542 dang thi lan anh 1.279.626 1.410.000 04 349 019 24.746.10 307.647.02 279.164.09 264.205.20 0 693.430.47 94.140.00 31.634.000 34.811.62 854.016.10 management 233.327.4 227.000.0 22.904.000 92.780.57 00 accounting and auditing 854.016.10 0 1.752.841 1.752.841 112 112 78 ... checking dang thi lan anh accounting and auditing 30 Graduation thesis Aggregating production costs and evaluating unit cost Aggregating production costs and evaluating unit cost in Huong Giang construction. .. thesis Aggregating production costs and evaluating unit cost Chapter II Accounting practices on aggregating production costs And evaluating unit cost in Huong Giang construction company In this section,... aggregating production costs and evaluating unit cost in construction companies In this chapter, theory on accounting for aggregating production costs and evaluating unit cost will be discussed It includes