Aggregating production cost and evaluating unit cost in Huong Giang construction company

charge of ensuring materials, machines, equipment for the construction requirements of each brigades. Building brigades: The main duties of construction brigades are construction, assuring the schedule and quality of works. 1.3. Accounting mechanism organization: In order to meet the production and business features and make full advantages of ability accountants, the accounting apparatus is organized to follow model of both concentration and division. Statistic accountants at construction brigades: They specialize in orginal counting, treating and checking accounting vouches and then periodical sending them to Accounting division of company. Company’s accountants make records of transactions performed by company and brigades, sums – up statements of brigades to make the company’s general statements of account. At present, each accountants is responsible for his / her task: Chief – accountant is responsible for the whole work of accounting, economic information and system of the company. He is also an assistant to the director in the business activities and responsible for all of the accounting organizations in the company. Accountant of general works and fixed assets is responsible for aggregating the whole operation costs, recording the movement of fixed assets and make its allocation table, open the detailed books and making statements to company’s regulations. Accountant of banking and materials is responsible for recording transactions of materials movement and the balance, the movement of cash in banks. Besides, he is also in charge of opening “Book for recording materials” and making the statements determined by Bank. Accountant of salary and insurance is responsible for calculating bonuses, social insurance, health insurance and payable to the employee. Cashier is in charge of paying cash and making daily cash balance table as well as keeping cash fund of company. Chart of accounting mechanism organization at Huong Giang company. Chief accountant Accountant of general works and fixed assets Cashier Accountant of salary and insurance Accountant of banking and materials Accountants of construction brigades 1.4. Accounting policy applied in company: 1.4.1. Accounting work: At present, company uses “system of account for enterprises” issued under the decision No.1141 TC/CDKT dated October 1st 1995 of Minister of Finance. Accounting method on inventories is perpetual method. 1.4.2 . The accounting book system: In order to suit small – scale production, few accountants and specialization of accounting mechanism, Journal Ledger is the form of book used in the accounting division of Huong Giang company. Accounting books is applied at company: The general accounting book: Journal Ledger. The subsidiary ledger cards. Procedures for recording transactions into journal ledger. Original documents Cash book Subsidiary Ledger Cards Original documents listing Journal Ledger General detailed reports Financial Statements Note : Daily recording Month end recording Reconciling, checking 2. Aggregating production costs and evaluating unit cost in Huong Giang construction company. 2.1. The objects and the method of aggregating production costs: At company present, company has bided and then giving to construction brigades to build. Company applies two types of task – work: Straight task – work. Three elements task – work: Raw materials costs, labour costs, factory overhead costs. The objects of aggregating production costs of company are constructions , construction items or customer’s orders. For products of construction, aggregating production costs are on the basis of production costs of each construction incurred are traced to this construction. For customer’s orders, the whole costs relating to construction are aggregated for each order. Company uses the direct aggregation production costs method, that means production costs relating to which object are aggregated to this object. For the costs are not direct aggregated because they involve in many costs objective, at the end of accounting period, accountants must allocate production costs followed the reasonable bases such as: assessed materials, assessed direct labour costs, output percentage, value estimate... 2.2. The objects of evaluating unit cost: The objects of evaluating unit cost of Huong Giang company are finished products. So actual unit cost of finished product is the whole costs incurred that relating directly to this construction or this construction item during the construction period. For work parts need to calculate the actual unit cost, the objects of computing unit cost are each specific structure part with its own estimation and it reaches to the reasonable stop point followed the contract’s regulations. In order to evaluate unit cost of this object, we must determine the work in progress. Huong Giang company determines the value of work in progress are the whole costs for parts that don’t reach to the stop point. 2.3. Classification and management of production costs: In order to manage effectively production costs and calculate accurately unit cost, analyzing the influence of each element cost in unit cost is so important. Before building, any construction must be made the estimation of technical design in order to examine by the leaders. Besides, this estimation is the base of making economic contract. The estimates are made for each construction and analyzed following each costs component. So it is able to compare and check the implementation of costs components with the estimate and it make advantages on analyzing the production results. Production costs of company are classified on the basis of purpose ans utility of costs. They includes: Direct raw – materials costs. Direct labour costs. Equipment costs. Factory overhead costs. 2.4. Aggregating production costs in Huong Giang company: 2.4.1. Accounting system used in the company: The major accounts used in aggregating production costs of Huong Giang company are A/C 621, A/C 622, A/C 623, A/C 627. These accounts are detailed according to each specific construction. 2.4.2. Aggregating production costs in Huong Giang construction company: The following object of aggregating production costs and evaluating unit cost is construction N18 – Political Institute. 2.4.2.1. Aggregating direct raw – materials costs: In Huong Giang company, raw – materials costs include all the value of materials needed to construct a finished construction. Huong Giang company is applied the task – work method to construction brigades and so the materials used for construction do. In order to savely and fully use materials, construction brigades make monthly the plan of buying materials on the basis of assessement and the volume of building. The staff of providing makes the “Advance request” (supplement 1) and transfer to the managers in order to examine and grant capital. Bases on the plan of buying materials, bill of materials price, and the advance request transferred by construction brigades, the manager signs to supply the advance for brigades. Accountant makes the payment voucher on the basis of advance request. When chief accountant and director had signed the payment voucher, cashier makes amount of money as the amount in voucher. The advance request is the base of recording in to detailed books of A/C 111, A/C 141. When inventory arrived, storekeeper with master and supplying staff examine the quantity and the quality of materials. After that, storekeeper makes “Goods receipt note” (supplement 2). Storekeeper makes “Goods delivery note” (supplement 3) when raw materials, tools and supplies are put in construction. Cost of inventory used for construction is computed by actual cost. The actual cost of inventory includes price on purchase invoice and transportation charges , handling expenses. On the basis of “Goods delivery note”, accountants of brigade record to the “Raw materials delivery voucher collection table” (supplement 4). At the end of month, brigade accountant compares the accounts on Goods delivery note with Raw materials delivery voucher collection table. Then he / she sends them and other relating vouchers to Accounting and Financial division. Accountant of production costs makes the “Raw materials cost collection table” (supplement 5) basing on received vouchers. These vouchers are the base of recording transactions into “Subsidiary ledger A/C 621” (supplement 6) and Journal Ledger. When the data of raw materials costs collection table and the data of subsidiary ledger A/C 621 are the same, accountant transferrers direct raw materials costs from A/C 621 to A/C 154. 2.4.2.2. Aggregating direct labour costs: In Huong Giang company, direct labour cost includes salary, bonuses, and allowances of employees who directly involve in construction process. Direct labour cost does not include social insurance, health insurance, trade union fees of direct employees and salary as well as social insurance, health insurance, trade union fees of machines operators. In addition, company also uses a lot of rent employees. Company gives this labour force to master of construction brigades whom are responsible for payment to them following the rental contract. Total of payment to the rent employees are credited to A/C 334 (detailed: Payable to rent employees) and the salary of company’s employees are credited to A/C 334 (detailed: Payable to employee). Huong Giang company applies two payment methods: Salary following product Actual volume of construction x Unit price of task work = Payment following product: This method is applied for the labour force who directly involve in construction. Payment following time: It is applied for the indirect staff in company, indirect management section at brigades and other employees at work camp. Salary per month = The basis salary level x Coefficient Daily salary = Salary per month / 26. ** After received construction from company, the master gives each part of work to each brigade through “Lump- sump contract” (supplement 20). The head of brigades record daily in the “Time – sheet” for each worker (supplement 7). When closing the lump – sump contract, technical staff and the head of work camp examine the quantity and the quality of works. If the contract is not closed untill the end of month, the technical staff will determine the finished works in this month and take it as the base of caculating salary for workers. Accountant makes the “Payroll” (supplement 21) on the basis of lump – sump contract and time sheet, at the end of month. Accountant calculates salary by following formula: Actual construction days of per person Total of received when closing contract Salary per person x The sum of construction days = ** For the rent workers: After aggreeing unit price, the master signs the “Rental contract” with the head of them (supplement 8). When finishing, the master and the technical staff examine and accept to pay followed the agreed volume and the unit price. ** At the end of month, brigades accountants gather the vouchers that relate to labour cost and send them to Accounting and Financial division in company. Accountant of company makes the “Salary allocation table” (supplement 9). Base on these vouchers, accountant record to “Subsidiary ledger A/C 622” (supplement 10), “Subsidiary ledger A/C 154” and Journal Ledger. After comparing, accountant transfers the direct labour cost of each construction to A/C 154. 2.4.2.3. Aggregating equipment costs: Equipment costs of company include depreciation of construction machinery cost, salary of machines operators, fuel oil cost, machines repair cost. This component is detailed in each construction. Company applies “Operation journal of construction machinery” to determine accurately the equipment cost to each object. Accountant at brigade makes the operation voucher of machines to each construction, and sends them to Accounting and Finance division at the end of month. As usual, company rends both of machines and operator. The whole costs are not reflected to equipment costs (A/C 623), but reflected to Render – services (A/C 627). Accountant of production costs of company makes the “Equipment costs allocation table” (supplement 11) on the basis of rental machinery contract and operation voucher of machines. Equipment costs are allocated by following formula: Total of actual A machine shift served for construction B x = Rental cost of A machine of month Total of actual A machine shift of month A machine cost allocated to B construction The construction machinery of N18 – Political Institute are belong to the company. So the whole costs of machines are recorded as follows: Fuel oil costs to operate machines: Brigades construction purchase fuel and oil by advance. And then recording following the principle of recording to direct object, that means costs created by any work camp or any machines are recorded to this work camp or this machine. Accountant of brigades making daily the “Fuel and oil delivery voucher collection table for machinery operation” (supplement 12) on the basis of original vouchers. At the end of month, brigade accountant gathers vouchers related to fuel and oil costs to transfer to Accounting and Financial division in order to record to subsidiary ledger A/C 623 and Journal Ledgers. Machinery operators cost: The initial vouchers are the time sheet, operation journal of construction machinery, and the lump – sump contracts. The master records daily in time sheet for each operator. Brigade accountant calculates salary for machinery operators when closing the lump – sump contract. Accountant of salary makes the “Payroll” for machinery operators on the basis of vouchers transferred by brigade accountant. Base on this table, accountant of production costs transfers the machinery operators cost to A/C 154 and records to Journal Ledgers. Depreciation of construction machinery cost: Depreciation of construction machinery of company are under the Decision 1062/TC/QD/CSTC. These costs are record directly one time into equipment costs for each construction (supplement 22). In order to estimate depreciation of fixed assets cost, the straight – line depreciation method is used for all fixed assets in the company. According to this method, depreciation cost of each month is estimated by following formula: Depreciation cost of each month x = Depreciation time Orginial price of fixed assets 1 12 Monthly, basing on the original vouchers , accountant at brigades make the “Equipment costs collection table” (supplement 13). And accountant at company makes the “Depreciation of fixed assets allocation table” for constructions on month and records to “Subsidiary ledger A/C 623” (supplement 14),”Subsidiary ledger A/C 154”, Journal Ledgers. 2.4.2.4. Aggregating factory overhead costs: In company, factory overhead costs are accumulated according to major items as follows: Salary of brigade’s management staffs and social insurance, health insurance of management staffs, direct labour, machinery operators. Daily, brigade’s accountant mark in the Time sheet and base on working time recording sheet to calculate management staffs cost. And then, he / she makes the “Payroll” for management staffs (supplement 15). Tools and supplies costs: In company, tools and supplies include protective clothes, picks, shovels, scaffoldings with low value ..., they are allocated one time into factory overhead cost. And high value scaffoldings are recorded to account fixed assets and determined depreciation following the time using for each construction. At the end of month, brigade’s accountant makes the “Tools delivery voucher collection table” (supplement 16) to transfer to Accounting and Financial division of company. Depreciation of fixed assets costs: It includes depreciation of houses, ware – house ... at brigades. Monthly, accountant of fixed assets calculates the depreciation as the above formula. According to “Fixed assets depreciation allocation table”, the depreciation of fixed assets of construction N18 in October – Year 2002 is: 4.233.000 VND. Services rendered costs and others paid in cash: Brigades accountant record daily to “Factory overhead costs collection table” (supplement 17) on the basis of invoice, payment voucher, and other vouchers. At the end of month, Accountant of production costs allocates the factory overhead cost to evaluate the unit cost of each construction on the basis of vouchers transferred by brigades. Factory overhead costs are allocated by following formula: Salary of direct labour of each construction Total of factory overhead costs x The major salary of direct labour of all constructions = Factory overhead cost allocated for each construction In October, brigade 8 only constructs the construction N18, so factory overhead costs are aggregated directly to this construction. After allocating factory overhead costs, company’s accountant records to “Subsidiary ledger A/C 627” (supplement 18), “Subsidiary ledger A/C 154”, Journal Ledger. 2.4.3. Aggregating production costs: In the company, accounting method is perpetual inventory one (described in chapter I). As a result, all costs which concern with production process are transferred to debit side of A/C 154 to evaluate unit cost (supplement 19). Then, accountant makes the “Production costs collection table of each construction” (supplement 23) and “Production costs collection table in October” (supplement 24). 2.5. Estimating of work in progress: In the company, the objects of work in progress estimate are constructions which are not handed over. At the end of year, the representative of Technical division, the construction’s technician and the construction manager estimate the work in progress. After receiving the “Work in progress physical count report” transferred by Technical division, the Accounting and Financial determine the actual cost of work in progress by following formula: Cost of work in progress at the ending + Cost of work in progress at the beginning Costs incurred in the period Volume of unfinished product at the beginning The volume of product incurred in the period + x = Volume of unfinished product at the ending The construction N18 – Political Institute has finished in year 2002, so it has not got work in progress. 2.6. Evaluating unit cost in Huong Giang construction company: In company, period of evaluating unit cost is the end of accounting period. If there is finished product in month, company will examine and hand over as usual. Accounting division compute the actual unit cost is the whole production costs incurred in construction procedure. At the end of year, accountants calculate the unit cost of each finished construction and determine the result of construction in this year. In order to keep with method of aggregating production costs, method of evaluating unit cost used is simple method (direct method). By this method, unit cost of construction product is determined by following formula: + - = Costs of work in progress at the beginning Actual unit cost of each construction Costs incurred in the period Costs of work in progress at the ending Chapter III Solutions to enhance performance of accounting division of the company in production cost aggregating and unit cost evaluating. During my training practice at the Huong Giang company, on the basis of theories and actual activities of aggregating and allocating production costs and evaluating unit cost, I would like to put forward comments and recommendations as follows: 1. Comments of aggregating production cost and evaluating unit cost accounting at Huong Giang company. 1.1. Good aspects of carrying out production costs aggregation and unit cost evaluation at Huong Giang construction company: Huong Giang company has developed either on scale or the qualify of production , since the establishing day. Company is going to be adjoining to the market in order to expand business size, attract the customers and sign the contracts. Company always invests the modern equipment and machines to satisfy the requirements of production. In addition, company pays more attention to elevate the labour force like: managers, staff and workers. Management mechanism of company is neatly arranged, the divisions have so effectively operated that give a good assistance to management board in checking the present management methods and making the more effective decisions on management. On the basis of theories and actual activities, I have realized that the company’ s accounting procedure has being complied with the accounting system set up by the Ministry of Finance. Over the past many years, the accounting devision has made considerable effort in improving internal accounting procedure, especially in the areas of aggregating production costs and evaluating unit cost. Firstly, the accounting mechanism is organzied in such fashion that it is convenient for deviding up the work. All the accountants have their own duties. Therefore, aggregating production costs, evaluating unit cost and making financial statement according to principles issued by State have been kept on time. Secondly, the initial documents of company have organized lawfully and completely. And the accounting book system of company are used so appropriately and properly that meets the requirements of works and standard of the accountants. Third, company has applied the task – work form to the construction brigades. It is the method of production organization that suitable with the features of construction company. Next, equipment costs of company have allocated on the basis of per – actual machine shift. So it reflects exactly the equipment costs that must be allocated to each object. Finally, over many accounting periods, the method of aggregating production costs and evaluating unit cost of company have kept stable. In addition, determining cost objective and objects of evaluating unit cost of company are fairly suitable, and they make advantages in evaluating unit costby simple method. As the result, it is easy to evaluating but the results are extremely accurate. 1.2. Several weaknesses of Huong Giang company: Besides these positive practices, the implementation of accounting practices in the Huong Giang company still have several weaknesses. First, the initial accounting is not properly carried out by the accountants in the company. It is carried out by the accountants of construction brigades under the guidance of accounting devision. Therefore, it restricts the company’s accountants checking to the real incurred transactions at work – camps. Second, because of either the bad rotation of initial documents or the areas of construction brigades far from the location of company, they effect to the making statement schedule that not timely provide the management with the accounting information. Third, because of building season, there is an interuption of using labour force. If company has not recorded the payable expense for labour costs on day’s leave and damage costs of production process, unit cost of construction will not reflect accurately the real costs. Next, due to construction machinery take a capable part in construction procedure, so company applies the straight – line depreciation method to construction machinery is not suitable. It effects to the accurate of net book assets and production costs to evaluate unit cost. Finally, factory overhead costs of company have been allocated by direct labour costs which is not fairly reasonable. As you know, Huong Giang is a construction company, so in order to raise the construction schedule and enhance the qualify of buildings, next to using more workers, construction machinery are used much more and they have high wear. Besides, company has allocated the value of scaffoldings one time to the first using construction which makes unit cost increased and profit decreased. 2. Solutions to enhance performance of accounting division of the company in production costs aggregating and unit cost evaluating. 2.1. Raw – materials accounting: Company can elect a staff to communicate and sign the long term contract for high value materials with the suppliers. Besides, the supply division should make the most economical effect purchasing and delivering process for each construction. Simultaneously, in order to save raw– materials costs, company should make the alternative of technique betterment, replace several possible materials to be able to decrease costs but not effect to the qualify of construction ... 2.2. Equipment costs: In order to reflect more accurately equipment costs for each construction, company should design “Machinery operation recognizing table” for all of equipment. It makes advantages in get