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

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

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2
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 do 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.

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3
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.

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4
GRADUATION
THESIS 2014

TABLE OF CONTENT

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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

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GRADUATION
THESIS 2014

LIST OF TABLES AND FIGURES

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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

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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.

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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:

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* 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.

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CHAPTER 1-LITERATURE REVIEW
THE BASIC THEORIES ABOUT ACCOUNTING IN COLLECTING
PRODUCTION COST AND CALCULATING COST OF FINISHED GOODS

1.The necessity of realizing importance of accounting in collecting
production cost and calculating cost of finished goods.
1.1. The necessity of realizing the importance of accounting in collecting
production cost and calculating cost of finished good.
In the current market economy ,there is an equality in business between
enterprises from economic sector.In other words ,they are competitive in an
equal enviroment.Therefore ,if companies want to survice ,develope and

make profits ,they have to keep on improving product quality ,saving
production cost and reducing cost of finished goods.To obtain these goals
,companies have to ensure to have an effective management in production
cost and right calculation in cost of finished goods.
Collecting production cost and calculating cost of finished goods play
an important role to company.Basing on important economic information
about production cost and cost of finished good that is timely,exactly,fully
provided by accountants ,managers can analyse ,evaluate whether the use of
capital ,materials and labour is effective .From that,companies can make
appropriate decision in choosing producing plans which give to them the
biggest profit and find the more suitable way in cost management and

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use.Hence,exactly collecting production cost and calculating cost of finished
goods is inevitable need every companies should have.

1.2. Requirements in managing production cost and cost of finished
goods.
In management ,many different methods are used ,however ,accounting
is still considered to be the most effective managing tool.Because ,accounting
provides data about cost collected from every parts to evaluate ,analyse
,estimate expenses incurring in producing process.Under perspective of
management ,it is essential for the managers to be conscious about
constitutive elements of expense and cost of finished good.Then,they can cut
down effects from negative factors as well as simultaneously promote effects
from positive factors.

Accounting in collecting production cost and calculating cost of
finished good is the most popular method that is widely used by business
obtaining advantage in competition.Especially,in the open economy ,with the
diversity of products,cost of finished good is the decisive factor for the
manufacturing firms’s survival.Therefore ,to reach the target of cutting down
cost of finished good ,accounting needs to meet particular demands:
-Frequently reviewing the progress of carrying out producing plan at every
parts in the firm.
-Exactly defining the objects that are collected production cost and cost of
finished goods.
-Choosing the congruous method to collect and allocate production
expenses for identified objects
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-Fully and exactly calculating cost of finished goods and production cost .
-Continuously supervising the onus implemention of reducing cost of
finished goods.
2. Production cost and cost of finished goods
2.1. Production cost and the classification of production cost.
2.1.1.The nature of production cost.
The firms’s primary objective in producing output is to maximize
profits.The production of output ,however,involves certain cost that reduce
the profits a firm can make .A cost inurred by a business when manufacturing
a good or producing a service.Production cost combine raw material and labor
.To figure out the cost of production per unit ,the cost of production is divided
by the number of units produced .A company that knows how much it would
cost to produce an items or produce a service ,will have a clearer picture of

how to better price the item or service and what will be the total cost to the
company.If costs are too high,these can be decreased or possibly
eliminated .Besides ,production cost can be used to compare the expenses of
different activities within the company.
Many people use “cost” and “expense” interchangeably and will not
make the distinction .The difference between cost and expense is a
considerable one and yet the terms are frequently intermingled even in the
published works of accounting authors .This makes the difference extremely
difficult to understand for those people training to be accountants.Cost most
closely equates to the term expenditure ,so it means that you have expended
resources in order to acquire something,transport it to your location and set it
up.However,it dose not mean that you have consumed the item that you
accquired.Thus,an item for which you have expended resources should be
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classified as an asset until it has been consumed .Expense is a cost whose
utility has been used up ,it has been consumed .Another way of thinking of an
expense is any expenditure made to generate revenue under the matching
principle ,which was particularly apparent in the last case ,where inventory
was converted into an expense as soon as a sale occured .Under the matching
principle ,you recognize both the revenue and expense aspects of a transaction
at the same time ,so that the net profit or loss associated with the transaction
is immediately apparent .Thus ,a cost converts to an expenses,as soon as any
related revenue is recognized. A key reason why a cost is ,in practice
,frequently treated exactly as an expense is that most expenditures are
consumed at once ,so they immediately convert from a cost to an expense
.This situation arises with any expenditure related to a specific period ,such as

the monthly ,utility bill ,administrative salaries,rent and so forth.
2.1.2.Classification of production cost
2.1.2.1.Classification on the basic of contents or economic
characteristics.
-Material cost:Is defined as the cost of product which only includes the
cost of materials and excludes all the indirect cost such as wages ,overhead.
-Labor cost:the cost of wages paid to worker during an accounting period
on daily ,weekly ,monthly or job basic plus payroll and related taxes and
benefits(if any)
-Depreciation expense of fixed asset:is systematic allocation the cost of a
fixed asset over its useful life .It is a way of matching the cost of a fixed asset
with the revenue (or other economic benefits) it generates over its useful
life.Without depreciation accounting ,the entire cost of a fixed asset will be

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recognized in the year of purchase .This gives a misleading view of the
profitability of the entity.
-Other cash cost :The cost besides three kinds of cost above incurring in
the producing process.
2.1.2.2.Classification by purpose of cost
-Direct materials cost:is the cost of direct materials which can be easily
identified with the unit of production .For exampe ,the cost of glass is a direct
materials cost in light bulb manufacturing .The manufacture of products or
goods required material as the prime element.In general ,these materials are
divided into two categories.These categories are direct materials and indirect
materials.Direct material are also called productive materials ,raw

materials,raw stock,stores and only materials without any descriptive title.
-Direct labor cost :is a part of wage-bill or payroll that can be
specifically and consistently assigned to or associated with the manufacture of
a product ,a particular work order,or provision of a service .Also,we can say it
is the cost of the work done by those workers who actually make the product
on the production line We can determine the direct labor cost by planning the
work to be performed ,describling the job content of the work by indicating
the skill ,knowledge or matching the jobs with the employees.
-Manufacturing overhead(Also referred to as factory overhead ,factory
burden and manufacturing support cost) refers to indirect factory –related
costs that are incurred when a product is manufactured .Along with costs such
as direct material and direct labor ,the cost of manufacturing overhead must
be assigned to each unit produced so that inventory and cost of goods sold are
valued and reported accounting priciple (GAAP).Manufacturing overhead

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includes:Indirect materials,indirect labor ,depreciation on factory buildings
and machines insurace ,taxes,maintenance on factory facilities.

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2.1.2.3.Classification on the relationship between cost and the volume of
product.

-Variable cost :is cost that changes in proportion to the good or service
that a business produces.Variable cost and fixed cost made up the two
components of total cost.
-Fixed cost:In economics,fixed cost ,indirect cost ,overhead are business
expenses that are not dependent on the level of goods or services produced by
the business They tend to be time –related ,such as salaries or rents being paid
per month,and are often referred to as overhead cost.In management
accounting ,fixed cost is defined as expense that do not change as a function
of the activity of a business within the relevant period.
-Semi-variable cost:( can also be named as semi-fixed cost ).The cost
which dose not vary proportionately but simultaneously dose not remain
stationary at all times
2.1.2.4.Classification on the way in which cost are allocated to
accounting objects.
-Direct cost :The expenses incurred on material and labour which are
economically and easily traceable for a product ,service or job are considered
as direct costs.In the process of manufacturing of production of
articles,materials are purchased ,laborers are employed and the wages are paid
to them .Certain other expenses are also incurred directly .All of these take an
active and direct part in the manufacture or a particular commodity and hence
are called direct cost.
-Indirect cost:The expense incurred on those items which are not directly
chargeable to production are known as indirect costs.For example,salaries of
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timekeepers,storekeepers and foremen.Also certain expense incurred for
running the administration are the indirect costs.All of these can not be

conveniently allocated to production and hence are called indirect costs.
2.2.Cost of finished goods and the classification of cost of finished goods.
2.2.1.The nature of cost of finished good.
Cost of finished goods is the cost assigned to units either completed or
still in the process of being completed at the end of an accounting period,for
that accounting period .This cost is most useful when disaggregated into its
component parts and examined on a trend line .By doing so ,managers can
determine the costs that a company is incurring over time to produce a certain
mix and quantity of units.The concept is useful for examining the cost
structure of a company’s production operations.The cost of materials used in
the manufacturing process during the period,the cost of direct labour used in
the manufacturing period,the amount of overhead allocated to manufactured
goods during the period.
A retail operation has no cost of finished good since it only sells goods
produced by others .Thus,it cost of goods sold is comprised of merchanise
that it is selling .The cost of finished goods is not the same as the cost of
goods sold.Good manufactured may remain in stock for many months
,especially if a company experiences seasonal sales.Conversely ,goods sold
are those sold to third parties during the accounting period.
2.2.2.Classification of cost of finished goods.
2.2.2.2.Classification on database and time when cost of finished goods
is calculated.

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-Planned cost of finished goods:Is product expense that is calculated
with the reference of planned production cost and planned quantity of

products.Calculating planned cost is carried out before manufacturing process
is started.Planned cost of finished goods is considered as target that most of
companies want to reach in order to reduce production cost and raise benefit
for company.
-Norm cost of finished goods:Is cost which is defined basing on recent
cost and only in form product unit.Calculating norm cost of finished goods is
norm managing tool,appropriate measurement in determining business result
that is really useful for companies in evaluating technological economic
solutions that business have applied in operating process in order to improve
productivity.
-Actual cost of finished goods:Is cost that is calculated on the basic of
actual volume of product in identified term .However,the actual cost of
finished goods can be only determined after producing process has been
completed.Actual cost of finished goods is a suitable measurement reflecting
companies’s effort in applying lastest achievement of technology and using
,allocating sources in the whole of manufacturing process.
2.2.2.3.The classification by the scope of calculation
-Production cost:includes production expenses such as direct material
cost ,direct labour cost ,other expenses that are allocated to finished
products.Production cost is the most important basic to determine cost of
goods sold in the producing period of business.
-Whole cost of finished goods:consists of producing expense and
selling expense .Whole cost of finished goods =Production cost +selling
expenses+managerial expenses.
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2.3.The relationship between production cost and cost of finished good.
Under perspective of the nature ,production cost and cost of finished
good are two sides of manufacturing process.They are the same in quality
because both of them are the representation of living labour and materialized
labour,otherwhile,they are different in quantity.Production cost is determined
in identified term,there is no distinction between finished and infinished
products.Cost of finished goods is identified producing expense that is
allocated to finished products .Unlike production cost,cost of finished goods
has beginning work in process inventory and ending work in process
inventory.

Z=Ddk+C-Dck
Z:Cost of finished goods
Ddk:Beginning work in process inventory
C:Total current manufactured costs
Dck: :Ending work in process inventory
3. Accounting in collecting production cost
3.1.The subjects collected in accounting production cost
Production costs in manufacturing firms not only have incurred in
different time ,parts but also used in different purposes.Hence,to account
production cost companies have to detemine subjects collected in accounting
production cost in the right way .It means that they have to determine the
scope ,limit in which production cost incurred .Besides that,companies also
should focus on some factors when identifying the subjects:

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-Manufacturing technology proess:If company’s manufacturing
technology process is simple ,the subjects collected production cost are total
manufacturing process.Otherwhile,if manufacturing technology process is
complex ,the subjects may stand in each stage of manufacturing process.
-Manufacturing features:If firms apply factory producing model,the
accounting of production cost is carried out in each factory.
-Manufacturing formality:If manufacturing formality is out of order ,the
subjects are each kind of products.However,If manufacturing formality is
serial,the subjects are each product and if manufacturing formality is to meet
orders ,subjects is each order.
Actually,determining subjects to collect production cost is identifying
the scope in which production cost incurred.It is very favorable for companies
calculating production cost if they correctly identify the subjects.Hence,the
calculation of cost of finished goods is easier.
3.2.The methods used in accounting production cost
3.2.1.Accounting for production cost in companies applying perpetual
inventory method.
In perpetua method of accounting,inventory records are updated after
each purchase or sale,inventory accounts are used to record the balance and
the moving of goods,cost of goods sold used are calculated based on units of
goods sold.
Account used
621:Direct raw material cost
622:Direct labour cost
627:Factory overhead cost
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6271:Indirect labor
6272:Use of auxiliary materials
6273:Use of tools and supplies
6274:Depreciation
6277:Service renderded
6278:Other expenses
154:Work in progress
155:Finished goods
632:Cost of goods sold.
3.2.1.1. Accounting for direct raw materials.
- Identifying allocation coefficient :
H=C/Ti
C:The total cost need to be allocated
Ti:Allocation standard for subjects: Ci=Ti*H
Ci:Cost allocated to each subject.
Direct raw materials cost are the raw materials that become a part of
the finished product.Manufacturing adds value to raw materials by applying a
chain of operations to maintain a deliverable product .Basing on direct
materials delivery vouchers,manufactures can easily calculated the actual cost
of direct materials used.
Accounting sequense
1.Material used for directly manufacturing products and supplying services
Debit account 621:
Credit account 152,611
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2.Purchase of raw material(not through the company’s warehouse ) used for
manufacturing product and supplying services.
Debit account 621
Credit account 111,112,331
3.Returning unused material at the end of accounting period.
Debit account 152,111
Credit account 621
4.Transferring the value of raw material exceeded the normal rates( abnormal
cost)
Debit account 632
Credit account 621
5.At the end of accounting period ,transfer(or allocate) cost of raw material to
each cost center.
Debit account 154,631
Credit account 621
3.2.1.2.Accounting for direct labour cost.
Direct labor cost is wages that are incurred in order to produce specific
goods or provide specific services to customers.
The total amount of direct labor cost is much more than wages paid .It is
also includes the payroll taxes associated with those wages plus the cost of
company –paid medical insurance ,life insurance ,workers compensation
insuarance ,any company –matched pension contributions and other company
benefits.

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Accounting sequense
1.Salaries ,wages and allowances for direct employees
Debit account 622
Credit account 334
2.Recognizing payroll compensations for direct employees
Debit account 622
Credit account 338
3.Provision for annual leave
Debit account 622
Credit account 335
4.Actual bebefits payable to employees when leave is taken
Debit account 335
Credit account 334
5.At the end of accounting period ,transfer (or allocate)direct labour cost to
cost center for calculating costs of product and services
Debit account 154,631
Credit account 622
6.Transfer of direct labor cost higher than normal rate to account 632
Debit account 632
Credit account 622

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