MINISTRY OF FINANCE

ACADEMY OF FINANCE
------

FINANCIAL ACCOUNTING THESIS

ACCOUNTING FOR MANUFACTURING COSTS AND
COST OF FINISHED GOODS

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 Table of Contents
1.1 Concepts, requirements and tasks for manufacturing costs and cost of finished
goods........................................................................................................................4
1.1.1 Manufacturing costs and cost of finished goods...........................................4
1.1.1.1. Manufacturing cost.............................................................................4
1.1.1.2: Costs of finished goods.........................................................................7
1.1.1.3. The relationship between the manufacturing cost and the costs of
finished goods....................................................................................................8
1.2 Manufacturing costs and cost of finished goods.................................................9
1.2.1 Accounting for manufacturing costs............................................................9
1.2.1.1 Manufacturing cost................................................................................9
1.2.1.2 Cost object...........................................................................................10
1.2.1.3 Costing method....................................................................................11
1.2.1.4 Accounting entries for manufacturing costs.........................................12
1.2.2 Accounting for finished goods...................................................................16
1.2.2.1 Classification.......................................................................................16
1.2.2.2 Cost object...........................................................................................17
1.2.2.3. Costing methods of finished goods.....................................................18
1.2.2.4 Accounting entries for manufacturing costs and cost of finished goods
.........................................................................................................................21
1.2.3 Accounting books for manufacturing costs and cost of finished goods......22
1.2.4 Disclosure of manufacturing costs and cost of finished goods related
information on financial statements....................................................................29
1.2.5. Accounting for manufacturing costs and cost of finished goods in terms of
the accounting software......................................................................................31

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1.1 Concepts, requirements and tasks for manufacturing costs and cost
of finished goods
1.1.1 Manufacturing costs and cost of finished goods
1.1.1.1. Manufacturing cost
The manufacturing is the monetary expression of all living and material labor costs
and other necessary expenses that the enterprise has spent to carry out production in a
certain period of time. Costs are always associated with activities that generate costs for
production activities, arising regularly, continuously during the production process of the
enterprise. However, not all expenses incurred by the enterprise are the production costs
such as the cost of raw materials losses, the penalty for breach of contract...
Manufacturing costs include direct materials costs, direct labor cost, manufacturing
overhead costs:
a. Account 621- Direct materials cost:
- This account is used to record costs of raw materials, materials used
directly for producing goods, rendering services in branches, such as industry,
construction, agriculture, forestry and fishery, traffic and transportation, post and
telecommunications, travel, and other services.
- Only accounting in Account 621 costs of raw materials, materials (include
both raw materials, main materials and subsidiary materials) used directly to
manufacture products, render services during the production and trade cycle. Costs
of raw materials, materials must be computed in actual delivered price for usage.
During account period, accountants carry out recording, collecting costs of raw
materials, direct materials in Dr 621 ―Direct material costs classified as various
users, result from direct usage of these raw materials, materials (If raw materials,
materials used for process producing products, rendering services can be
determined specifically for each user), or as summarized costs for process
manufacturing products and rendering services. (If raw materials, materials, used
for process producing goods and rendering services, can‘t be specified for each
user).
- At end of account period, transferring (if raw materials, materials can be
grouped specifically for each separate objects), or carrying out allocating and
transferring costs of raw materials, materials (If can‘t be grouped specifically for
each separate objects) into account 154, served for calculation of actual costs of
products, services during account period. When allocating value of raw materials,

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 materials to costs of products, business must use reasonable grouping
characteristics such as usage rate.
+ When purchasing raw materials, if the input VAT is deducted, the value
of raw materials shall not include VAT. If the input VAT is not deducted, the value of
raw materials shall include VAT.
+The cost of raw materials, direct materials beyond normal levels is not
included in the cost of products and services but must be transferred immediately to
account 632 "Cost of goods sold".
b. Account 622 - Direct labor cost:
- Costs of direct labor consists of accounts payables for laborers who
belong to business employees list, directly manufacturing products, supply
services and cost of out soured laborers in various type of works, such as: salary,
wage, subsidiaries, and appropriation from salary (social insurance, medical
insurance, labor union fees, and unemployment insurance).
- Salaries and wages payables and subsidiaries for factory employees,
managerial employees, of business, management, and sales employees shall not
accounted to this account.
Construction activity, salary, wage, supplement of salaries payables for
workers who directly manage trucks, machinery, serve, machinery operation,
appropriation of social insurance, medical insurance, fees of labor union computed
on salary fund payables to direct workers of construction activity, handling of
machinery, serving machinery, factory employees shall not be accounted to this
account.
Account 622 must be opened in details for costs objects of manufacturing
and trading. Part of costs: of direct labors in excess of normal level is not added to
costs of products, services, but must be posted directly to Account 632 ―Cost of
goods sold
This account is used to record costs of direct labor participating in activities
of manufacturing and trading in industry, construction, agriculture, forestry and
fishery, services (traffic and transportation, posts and telecommunications, hotel,
travel, consulting...)
c. Account 627 – Manufacturing overhead costs:
- Manufacturing overhead costs including: Salaries of managerial
employees in factories, departments, and teams, depreciation of fixed assets used
directly to produce, appropriation of social insurance, medical insurance, labor
union fees, unemployment insurance calculated as percentage of salaries payables
for employees in factories, departments, production teams, costs directly related to

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 other factories. Account 627 is only used in manufacturing business of industry,
agriculture, forestry and fishery sections, capital construction, traffic and
transportation, post, tourism and services industries.
- This account is used to record costs for production, and trading incurred in
factories, departments, teams, constructions, served manufacturing productions,
rendering services.
- Account 627 is only used in manufacturing business of industry,
agriculture, forestry and fishery sections, capital construction, traffic and
transportation, post, tourism and services industries. Account 627 is recorded by
detailed accounting for every factory, department, team and group of production.
Manufacturing overhead costs recorded on account 627 must be accounted for in
detail under two categories: Fixed overhead and variable overhead, in which:
+ Fixed manufacturing overhead expenses are indirect production
costs, usually do not depend on volume of products, such as costs of maintenance
machinery and equipment, plants..., and general administration expenses in
factories, departments, production teams and groups.
+ Fixed manufacturing overhead expenses are allocated in
manufacturing costs of each unit of production, it is based on normal capacity of
machinery normal capacity is volume of products achieved averagely in normal
conditions of production.
+In case actual volume of products is higher than that of normal
capacity, then fixed overhead will be allocated for each unit of product with actual
costs incurred.
+In case actual volume of products is lower than that of normal
capacity, then fixed overhead will be allocated to manufacturing costs for each
unit of product in normal capacity. Unallocated part of costs will be recorded in
cost of goods sold in the period.
- Variable manufacturing overhead cost is indirect production costs usually
directly or almost directly volume of product units, such as costs of raw materials,
indirect materials, indirect labor costs. Variable manufacturing overhead are
allocated to tally to manufacturing costs of each product unit according to actually
incurred costs.
In case a production process induce many types of costs during the same period,
and manufacturing overhead cost of each type of product can‘t be recorded separately,
then overhead will be allocated to these types of costs under grouping characteristics
appropriately and consistently among account periods.

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 At end of period, accountants calculate and allocate, transfer manufacturing
overhead cost to Dr 154 ―Work in progress or at Dr 631 ―Cost of production. Account
627 is not used for commercial business activities.
This account is used to record costs for production, and trading incurred in
factories, departments, teams, constructions, served manufacturing productions,
rendering services.
1.1.1.2: Costs of finished goods
Costs of finished goods is the total cost of living labor, material labor and other costs
used to produce and complete a certain volume of products, labor or services.
- Finished goods is used to record current cost and decrease or increase in
finished goods of the enterprise. Finished goods inventory are products which
have been completely processed through manufacturing process of manufactured
business, or products completely outsourced and verified as compliance with
technical standards and stored. In the transactions in export entrustment, this
account is only used by delegator, not by trustee
- The finished goods manufactured by direct production divisions and
indirect production divisions of the enterprise must be evaluated according to
prime cost, including: direct raw materials cost, direct labor cost, factory overhead
and direct relevant costs related to manufacture of products. - Variable factory
overhead shall be wholly allocated to processing cost of each product unit
according to actual cost incurred within an accounting period. - Fixed machinery
overhead shall be allocated to processing cost of each product unit according to
common capacity of manufacturing machinery and equipment. Common capacity
means common volume of products manufactured in the normal manufacturing
condition. - If the actual capacity is greater than common capacity, the fixed
machinery overhead shall be allocated to each unit according to actual costs
incurred. - If the actual capacity is lower than common capacity, the fixed
machinery overhead shall only be allocated to processing cost for each unit
according to the common capacity. The non-allocated factory overhead shall be
recorded to the cost for income output (recorded to costs of goods sold) within an
accounting period.
The following costs shall not be recorded to prime costs of finished goods:
 Costs of raw materials, labor and other operating costs incurred exceeding normal
rates;
 Cost of preservation of inventory deducted from cost of preservation of inventory
for next manufacturing process and preservation cost as prescribed in Accounting
standard ―Inventory‖;
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  Selling expenses;
 General administration expenses;
 Finished goods processed under outsourcing agreement shall be evaluated
according to actual prime cost of processing, including: direct raw materials cost,
outsourcing cost and other costs related to outsourcing process.
- The cost of finished goods inventory shall be calculated according to one of
following method: specific identification; weight average; or first in – first out.
- In case the enterprise uses the periodic inventory system, the finished goods
which are received and dispatched inventory shall be recorded daily according to
accounting cost (may be planned prime cost or regulated inventory cost). At the
end of the month, the actual prime cost of inventoried finished goods must be
calculated and difference between actual prime cost and accounting cost of
finished goods (including the difference of beginning finished goods) which is the
basis for calculation of actual prime cost of received or dispatched finished goods
within an accounting period (using the formula prescribed in account 152 ―Raw
materials‖).
- The finished goods shall be specifically accounted according to every
inventory, type, group, finished good items.
1.1.1.3. The relationship between the manufacturing cost and the costs of finished
goods
Manufacturing cost and cost of finished goods are closely related. The cost
of manufacturing in a period is the basis for calculating the cost of finished goods,
work, and labor, saving or waste of the enterprise on manufacturing costs that
directly affect the increase or sale off. In essence: Manufacturing costs and cost of
finished goods are the same because they are the consumption of living labor,
material labor and other expenses of the enterprise are expressed in money.
However, there is a difference between the cost of manufacturing and the cost of
finished goods in terms of the following aspects:
 Scope: Manufacturing cost and business, including costs of manufacturing and
management costs. Business and consumer products. The cost of production only
includes production costs (direct costs and production costs).On the other hand,
production costs only cover the costs incurred during a given period (month,
quarter, year) regardless of the costs associated with the number of finished
products. The cost is limited to the amount of production costs associated with the
volume of finished products and services.

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  In terms of quantity: The production cost refers to the cost in a period, while the
production cost relates to the cost of the previous period, part of the production
costs incurred in the period, expressed in formula:
1.2 Manufacturing costs and cost of finished goods
1.2.1 Accounting for manufacturing costs
1.2.1.1 Manufacturing cost
Manufacturing costs are the costs incurred during the production of a
product. The costs are typically presented in the income statement as separated
line items.
Most manufacturing companies separate manufacturing costs into three
broad categories: Direct materials, direct labor and manufacturing overhead.

Formula for manufacturing costs:

Main components of manufacturing costs

- Direct materials: is the materials used in the construction of a product. For example,
the cost of plastic component is identified as direct materials cost in the production of
plastic bottle, the seats that Airbus purchase from subcontractors to install in its
commercial aircraft and the tiny electric motor Panasonic uses in its DVD player.
- Direct labor: is that portion of the labor cost of the production process that is
assigned to a unit of production. The direct labor costs includes not only wages of
employees, but also worker's compensation, life and medical insurance, payroll taxes,
training costs, and pension contributions. Examples of direct labor include assembly-line
workers at Toyota, carpenters at the home builder companies.
- Manufacturing overhead: includes all costs of manufacturing except direct materials
and direct labor, costs are applied to units of production based on a variety of possible
allocation systems, such as by direct labor hours or machine hours incurred. The costs,
which do not relate directly with the manufacturing of products, are referred to as
manufacturing or factory overhead costs or indirect costs. Some examples are indirect
labor, indirect materials, insurance cost related to factory operations, depreciation
incurred on factory equipment, electricity of the equipment, rent of the plant, and

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compensation of plant managers, utilities, property taxes, repairs and maintenance of
equipment or property.
Only those costs associated with operating the factory are included in
manufacturing overhead.
1.2.1.2 Cost object
The manufacturing cost object is the range from which the production costs
are accumulated. The manufacturing costs of enterprises arise in many different
locations and process of producing many different sorts of products. It is necessary
for the management to determine where the costs arise, for which they are
aggregated. Therefore, the manufacturing cost arising in the period must be
accumulated by particular scope and limit.
Identifying the manufacturing cost object is to identify where they arise (plan,
manufacturing division, technology stage ...). To identify the manufacturing cost object,
administrators base on:
• Characteristics, uses of production cost.
•The orgarnization structure, manufacturing technology process, types of products
• Knowledge and qualification of the management, staff and accountant.
• Requirements on manufacturing cost and price management,…
Depending on a company’s specific features and position, its cost object would be
as follows:
•Each product, product detail, each type or group of goods, orders, …
•Each factory, team, manufacturing division, each stage of production technology
•The entire production technology procedure or the whole enterprise.
Determining cost object in an appropriate way is the basis for conducting the
record of production costs, from opening entries to posting figures in the accounts and
sub-ledgers of manufacturing costs.

1.2.1.3 Costing method

Manufacturing costing methods are accounting techniques that are used to
help understand the value of inputs and outputs in a production process. By
tracking and categorizing this information according to a rigorous accounting
system, corporate management can determine with a high degree of accuracy the
cost per unit of production and other key performance indicators. Management
needs this information in order to make informed decisions about production
levels, pricing, competitive strategy, future investment, and a host of other

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 concerns. Such information is primarily necessary for internal use, or managerial
accounting. The major manufacturing costing approaches are as follows:
a) Direct Costing
Direct costing is a costing methodology that only looks at variable costs (i.e.
costs that increase or decrease proportionally with production output). It does not
consider fixed costs. Direct costing has merit as an analysis tool for helping
management make short-term pricing decisions.
The advantage of direct costing is that it helps managers who are not
routinely tasked with having to make costing and pricing decisions achieve a fairly
accurate “minimum” price that is required to sell incremental units of a given
product.
The issue with this approach is that it is only useful for short-term decision
making. It would be a fallacy to assume that this approach will result in accurate
pricing and profitability for the long-term. For long term pricing, you must have a
good handle on overhead costs. Therefore, job costing, standard costing or ABC
costing will yield more accurate results that direct costing for long-term pricing
decisions.
b) Indirect allocation methods
This method applies in cases where production costs incurred in relation to
many subjects gathers production costs does not original recording production
costs incurred for each object. In this case must gather production costs incurred
for each common objects for each costs place are incurred. Then choose the
appropriate allocation criteria for allocation of these expenses for each subject
total cost should allocate
- Distribution coefficient =
total quantily allocated standards
- Determine the cost allocated to each object

{
Ci :cost allocation for subject i
Ci=Ti x H T i :standard distributions of i
H :distribution coefficient
An example of an indirect allocation method:
* Activity-Base Costing (ABC Costing)
ABC costing is a costing methodology that identifies activities in an
organization and assigns the cost of each activity with resources to all products
and services according to the actual consumption by each. This model assigns
more indirect costs (overhead) into direct costs compared to conventional costing.
Activity based costing is a costing methodology that aligns an
organization’s resources and their activity to the company’s products or services as
it relates to their cost consumption. ABC costing incorporates more indirect costs
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 into direct production activities to help drive pricing decisions. When executed
Acc 621
properly ABC Costing can help organizations gain clarity into products that are
profitable and those that are not, which is valuable in determining a product’s life
cycle, or identifying areas where process improvement could produce better yields
for existing products.
The advantage of this approach is that management can then observe which
tasks cost the most versus which add the most value; this analysis may indicate
that a disproportionate amount of money is being spent on low-value activities,
signaling a need for process changes or for outsourcing to a vendor that can
perform the tasks less expensively.
1.2.1.4 Accounting entries for manufacturing costs.
1.2.1.4.1 Accounting for direct materials costs.
Account used: 621 – Direct materials
Debit side:
Actual value of raw materials, materials delivered for directly usage in manufacturing
activity of products, or rendering services during account period.
Credit side:
- Transferring value of raw materials, materials actually used for production and trade
during the period to Account 154 ―work in progress‖ or to Account 631 ―costs of
production‖, and transferring in details to separate objects to compute cost of products,
services.
- Transferring cost of direct materials in excess over normal level to Account 632 - "Cost
of goods sold".
- Value of direct materials which is redundant will be restored to warehouse.
Account 621 does not have ending balances
Recording transactions of raw materials cost:

Acc 151, 152 (611) Acc 152, 111

1. Materials used for
directly manufacturing
and supplying services
products
Acc 111, 112, 331,
3. Returning unused material
at the end of accounting
period
Acc 632
4. Transferring the value
of raw material exceeded
the normal rates

2. Purchase of raw materials

(not through the company’s
warehouse)
Acc 133 Acc 154(631)
VAT 11

5. Transfer cost of raw

material to each cost center
 1.2.1.4.2 Accounting for direct labor cost.
Account used: 622 – Direct labor
Debit side:
Costs of direct labors participating in process of manufacturing products, and rendering
services, in clued: salaries, wages and appropriation of salaries, wages as regulated in the
period.
Credit side:
- Closing out costs of direct labor to Debit of Account 154 ―Work in progress‖ or to
Account 631 ―Cost of production‖.
- Transferring costs of direct labor in excess of normal level to Account 632.
Account 622 does not have ending balances.

Recording transaction of direct labor cost

Acc 334 Acc 622

1. Salaries, wages and
allowances for direct
employees
Acc 154/631
5. Transfer direct labor cost to
cost center for calculating costs
of product and services

Ac 338 Ac 632
2. Recognizing payroll
compensations for direct
employees
6. Transfer of direct labor cost
higher than normal rate
Ac 335
Ac 334
3. Provision
4. Actual benefits for annual
payable to leave
employees
1.2.1.4.3 when for factory overhead costs.
Accounting
leave isused:
Account taken627 – Manufacturing overhead
Debit side:
Manufacturing overhead costs incurred in the period
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Credit side:
- Decreases in factory overhead cost;
- Fixed overhead costs unallocated are recorded in cost of goods sold in the period,
because actual level of production is lower than normal level of capacity;
- Transferring manufacturing overhead cost to Dr Acc 154 ―Work in progress‖ or Dr
Acc 631 ―Cost of production‖.
Account 627 does not have ending balances.
Account 627 – Manufacturing overhead cost, comprises 6 sub - accounts:
- Account 6271 - Costs of factory employees.
- Account 6272 - Cost of materials.
- Account 6273 - Cost of production tools.
- Account 6274 - Depreciation costs of fixed assets.
- Account 6277 - Costs of outsourced services.
- Account 6278 - Other cash expenses.

Recording transaction of factory overhead costs:

Ac 334,338 Ac 627 Ac 111,112,138
1. Indirect labor incurred 6. Decrease in factory overhead
cost
Ac 154(631)
2. Indirect materials used
Ac 152,111,112
8. Amount of fixed overhead
Ac 153, 242 costs not allocated
3. Tools and supplies are used
for administrating the factory
Ac 214
7. Transfer of factory overhead
4. Depreciation cost of fixed cost to cost center Ac 632
asset used in the factory
Ac 112, 113,331

5. Services and other

expenses used for
administrating the factory
Ac 133

VAT

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1.2.2 Accounting for finished goods
1.2.2.1 Classification
There are two ways to classify the cost of finished goods:
* Classification by time and source of data: in this way prices is divided
into:
- The cost price of the plan is the product cost calculated on the basis of the
production cost of the plan and planned output. The planned costs shall be determined
before commencing the production on the basis of the actual cost of the previous period
and the norms of cost estimates of the planning period. The cost of the plan is the price
that the business takes it as the target, it is the basis for comparison analysis of the
performance of reducing the price of the product.
- Standard price is the price of production calculated on the basis of the
normal cost at specific points in the planning period and set only for the product
unit. Normal price is being determined before starting the production and is a tool
for managing the quota of enterprises. It is also used for measurement the total
amount of materials, labor and machinery accumulated in production. Companies
set standard price as a criterion to evaluate the feasibility of their economic and
technical solution, then earning a high economic efficiency.
- Actual price is the cost of production calculated on the basis of
accumulation in the actual expenses incurred and the output of products produced
in the period.
The actual price is a general economic indicator reflecting the results of an
enterprise’s striving. It is also the basis for determining the results of production
and business operation.
* Classification by scope of cost includes:
- Cost of production: is the costs incurred related to the production of
factories and manufacture divisions such as direct materials costs, direct labor
costs, manufacturing overhead accumulated for finished products. It is used to
record finished goods put in stock and cost of goods sold. Production cost is the
basis for measurement of COGS and gross profit in the period.
- Sale price (the total price): includes the price to production plus selling
expenses and administration expenses allocated for sold goods. It is used to
measure the profit before taxes of a company.

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1.2.2.2 Cost object
Cost objects are types of products, work and services that a company
completely produced and need to be calculated their total cost and unit cost.
Determining cost object is the first work required in the whole of
accounting work, the cost accounting must base on the production characteristics
of the enterprise for each type of products and services, each figures of production,
supplying and use of goods to determine the appropriate cost object.
In terms of production organization, if the enterprise organizes production
in a single unit, each type of product or each job is a cost object. Otherwise, in
mass production enterprises, each product is a cost object. In case of organizations
that produce large quantity of merchandises, a cost object is a single product. For
enterprises with complex framework of production and processing technology,
cost object may be a semi-finished product at each stage or the finished product at
the last technology stage and may also be each part, each detail or even a whole
completely assembled product.
Expenditure incurred, after being determined in accordance with the
accounting objects for manufacturing cost, shall be the basis for calculating the
cost of products and services to the specific object.
Determine the cost object is the basis for accounting to settle the price list.
For example: fabric production process
Cotton yarns weaving fabric dye Finished fabric
 The object is half finished products in each workshop: cotton, yarns, weaving,
fabric dye and the finished product is finished at the end of the technological
process: finished fabric.
1.2.2.3. Costing methods of finished goods
Because of fundamental differences between the manufacturing costs
accounting objects and the costing of finished goods object, there is a difference
between the manufacturing costs gathering methods and the costing of finished
goods methods.
Basically the costing of finished goods methods consist of the following
methods: direct method, coefficient method, proportion method (norm), method of
eliminating by –product, cost calculation method by order, staging method.
Content and characteristic of the cost of finished goods method
a) Direct method
This method is applied to the enterprises that are in the form of simple
production, the number of small items, the production of large volumes and short

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 production cycles such as: power plants, water plants and mining enterprises (ores,
coal, wood, etc.). The cost accounting objects are each kind of goods, services.
Accounting object costs are the same as cost accounting objects. In addition, the
method is applied to enterprises that have complex production processes but
produce large volumes and few products and each type of product is manufactured
in separate workshops, or to calculate the cost of the resulting work at each stage
of production.
 Advantages: Easy to calculate due to the low number of items. Accounting is
usually conducted at the end of the month coinciding with the reporting period for
easy comparison and easy following.
 Disadvantages: The method is only applied to the enterprises producing small
quantities of commodities, or the enterprises producing only one kind of products,
with short production cycles, or with insignificant unfinished products and small
scrap recovery.
Total cost of production = Work in progress cost at the beginning of the period
+ Production expenses in the period
- Work in progress cost at the end of the period
Total cost of production
Price per unit =
Units of finished goods
b) Coefficient method
This method is applied to the enterprises that in the same production process, one
kind of material and a quantity of labor is used but simultaneously collecting different
products and non-aggregated costs for each type of product will be aggregated for the
whole production process. Therefore, in order to determine the price for each principal
product, it is necessary to convert the principal different products on the only product
called the standard product according to the built-in conversion coefficient. The product
whose coefficient is 1 is chosen as the standard product.
The manufacturing cost accounting object at the enterprise is the factories or
technological process. While the costing of finished goods object is the principal
completed products.
If in the production process there are finished goods, we must to convert into standard
products to determine unfinished production costs at the end of the period.
 Advantages: Can be used to calculate many types of products in the same process.
 Disadvantages: Difficulties in choosing the principal product, complex
computational steps.
c) Proportion method (normal)

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 This method is applied to the enterprises producing a variety of products with
different specifications such as garment, knitting, shoe making, mechanical
manufacturing (tools, spare parts).... To reduce the volume of accounting, the accountants
usually classify production costs into groups. Based on the ratio between the actual
manufacturing cost and the planned/ normal production cost, the accountant will calculate
unit cost and total cost of each product.
The manufacturing cost accounting object is a group of products of the same type, the
costing of finished goods object is each specification of products in the group.
 Advantages: This method allows for a quick detection of the differences between
the actual cost and the normal cost of each item ....it assists managers in making
decisions in order to save costs, prevent wasted phenomena and use the right cost
effectively to reduce the costing of finished goods.
 Disadvantages: Difficulties in calculating the normal cost of goods at the
beginning of the month. Moreover, accountants must separately calculate each
cost item constituting the cost of products in different ways. Therefore, using this
method is very complicated.
d) Method of eliminating by –product
This method is applied to the enterprises which can get not only the principal products
but also by-products in the same production process. Accountants must exclude the value
of the by-products from the total cost of production to calculate the value of the principal
product.
The value of the by-products can be determined by the usable price, the estimated
price, the planned price, the price of the raw material.
 Advantages: Accounting is usually conducted at the end of the month coinciding
with the reporting period for easy comparison and easy following.
 Disadvantage: Enterprises need more machinery to produce by-products.
e) Cost calculation method by order
This method is applied to the enterprises producing according to the buyer's order. The
characteristic of this method is the price charged on each order, so the organization of the
cost accounting must be detailed for each order.
According to this method, the manufacturing costs accounting object is each order that
is also the cost of finished goods object. The costing for each order is the total cost of
production incurring from the commencement of the work to completion, or delivery to
the customer. With orders that are not completed at the end of the period, all production
costs that have been collected according to the order are considered as the value of the
unfinished product transferred to the next period.
 Advantages:

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 - Flexible, regardless of workshop.
- It is possible to calculate production costs for each order, thereby
determining the selling price and calculating the profit on each order.
 Disadvantages
- Discrete, not uniform when distributing in other departments
- Many production orders make it difficult to produce and distribute.
- It will be difficult if the customer requests a quotation in advance.
f) Staging method
This method is applied to the enterprises with complex production technology such
as: continuous processing, the production process consisting of several sequential stages
in sequence, each stage creating a semi-finished product... The semi-finished products of
the previous stage are the objects of the next stage. The characteristic of this kind of
production is that there are always unfinished products and unfinished products at all
stages. Product can be in all stages. The cost accounting objects are the processing stage
of the technological process; the costing of semi-finished product object is each
intermediate stage; the costing of finished goods object is the final processing stage.
 Advantages: Strict stages, the companies have a stable production plan.
 Disadvantages: complex calculations, multiple stages.
1.2.2.4 Accounting entries for manufacturing costs and cost of finished goods.
* Relating accounts:
Account 154- Work in progress
Account 155-finished goods
Account 621- direct raw materials cost
Account 622-direct labor cost
Account 627-factory overhead costs
Account 631-cost of product manufactured
* Accounting sequence (perpetual inventory method)

Account 621 Account 154 Account 155

Direct raw
Materials costs Transfer direct raw finished goods
Materials costs
Account 632
Account 622
Direct labor
Cost Transfer direct labor cost of goods sold
Cost

18
 Account 627
Manufacturing
Overhead Allocate manufacturing
Overhead

*Accounting sequence (periodic inventory method)

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 Work in progress at the beginning
Of the period
Account 621 Account 154
Direct Account 631
Materials cost Transfer entry Work in progress
At the end of the period
Account 622
Collection direct Account 632
Labor costs Transfer entry
Cost of finished products
Account 627
Manufacturing Transfer entry
Overhead costs

1.2.3 Accounting books for manufacturing costs and cost of finished goods
Accounting form is a system of accounting books used to record,
systematize and synthesize data from original vouchers in a certain order and
booking method. Each enterprise must base on its system of accounting accounts
and State's accounting regime as well as its production scale and characteristics to
select appropriate accounting forms.
In accounting for manufacturing costs and cost of finished goods, according
to the current accounting regime, enterprises usually apply one of the following
accounting forms:
1. Form of general journal
a) The basic characteristic of general journal:
All business operations must be recorded in the journal, specially the
general journal, in chronological order and according to the economic content of
that operations. Then the figures in the journal will be posted to the ledger by each
transaction.
b) Form of general journal consists of the following main types of books:
 General journal, Special journal such as Purchase journal
 Ledger
 Detailed accounting books and cards
c) The procedure of recording accounting books in the form of general journal
Original vouchers:
-Good receipt
20 notes

-purchase invoice
.....
2. Form of journal – ledger
a) The basic characteristic of the accounting form of journal-ledger:
All business operations are recorded in chronological order and according to the
economic contents (according to the account) on the journal ledger. Basis of the record in
the journal - ledger are accounting vouchers or table of similar vouchers.
Form of journal - ledger consists of the following types of accounting books:
 Journal – ledger
 Detailed accounting books and cards
b) The procedure of recording accounting books in the form of journal ledger

Original vouchers:
- Good receipt notes
-Purchase invoices
.........

Accounting
Cashbook Compendium of
books and cards
original vouchers
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 Journal – Ledger General detailed
reports

Financial statements

3. Form of journal voucher

a) The basic characteristics of the journal voucher form:
 To assemble and systematize economic operations arising from the credit side of
the accounts combined with the analysis of the economic operations according to
corresponding debit accounts.
 To closely combine the recording of economic transactions arising in
chronological order with the systematization of operations according to economic
contents (according to the account).
 To widely combine the general accounting with the detailed accounting in the
same accounting book and in the same recording process.
 To use printed forms of corresponding account relations, indicators of economic
and financial management and make financial statements.
b) Form of journal voucher includes the following types of accounting books:
 Journal voucher
 List
 Ledger
 Detailed accounting book or cards
c) The procedure of recording accounting books in the form of general journal

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 Original vouchers:
- Good receipt notes
-Purchase invoices
.........

List Journal vouchers Accounting books

and cards

Ledger of acc 155, General detailed reports

acc 632,...

4. Form of general journal voucher

a) The basic characteristic of the general journal voucher form:
The direct bases for recording general accounting
Financial books are "general journal vouchers".
statements
General accounting entries include:
 Recording in chronological order on the register of general journal vouchers
 Recording according to the economic contents on the ledger.
Accounting vouchers are made by the accountant on the basis of each
accounting voucher or table of similar notes with the same economic contents.
General journal vouchers are numbered consecutively each month or year
(according to the serial number in the register book of general journal vouchers),
must have attached accounting vouchers, and must be approved by the chief
accountant before posting to the accounting books.
b) Form of general journal voucher consists of the following types of accounting
books:
 General journal vouchers
 Register book of general journal vouchers
 Ledger
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 Detailed accounting books and cards.
c) The procedure of recording accounting books in the form of general journal
voucher:

24
 Original vouchers:
- Good receipt notes
-Purchase invoices
.........
Accounting
Cashbook Compendium books and
of original cards
vouchers

General journal voucher

Register book of
General journal
voucher
Ledger of the acc 155, acc
632,...

General detailed
reports

Explanations Financial statements

: daily report Trial balance
: report at the end of the month
: compare and check

1.2.4 Disclosure of manufacturing costs and cost of finished goods related

information on financial statements
To serve the management in the company, information on production costs and
product costs are presented in detail on the report of management accounting as Balance
cost report detailed reporting costs under cost element items according to each type of
product.

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 In addition to service of the decision of the objects inside and outside the enterprise,
but information on production costs and product prices are also presented in the financial
statements as through the general indicator accounting on the balance sheet statement of
operations and are presented in more detail in the notes to the financial statements.
On the balance sheet
1) Property Section
a) Criteria inventory: this index reflects the full value of existing kinds of inventory
reserves for the production business enterprise after deducting the provision for
impairment of inventories to time report.
- Basis of data: Accounting balance sheet prior year balance of Acc type 1 on
the ledger detail and aggregated reporting period end.
- Method of making
 The first column: Based on the last column of last year’s balance sheet.
 Columns As of year-end: total loans of accounts 151- goods in transit, 154 -
business manufacturing costs of unfinished goods, 155- goods, and 157 - sells
goods sent, 158- goods bonded warehouse.
Acc 154 and Acc 155 is the account that affect the information on costs and cost
of research topics.
b) Targets Short-term prepaid expenses: are expenses paid but not included in the
final period the cost of business of the reporting year.
- Basis of data: Balance Sheet Account Balance year before the end of period
Acc 142 on the report.
- Method:
 Column of the first: Based on the last column of the table Balance Sheet
December 31 last year.
 Columns of late Based on the outstanding balance on the Acc 142
c) Targets Long-term prepaid expenses: reflects the long-term prepaid expenses on
an unallocated expense during the manufacturing business.
- Basis of data: accounting balance sheet previous year on 242 TK balance
ledger reporting period end.
- Method:
 Column of the first year: based on last column of the table of Balance Sheet
December 31 last year.
 Columns of year-end based on the amount outstanding on the ledger Acc 242.
2) Part funding

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 a) Indicators accrued expenses: reflects the value of amounts calculated prior to the
production costs of business, but not actually spent in the reporting period.
- Basis of data: accounting balance sheet previous year on 335 TK balance
ledger reporting period end.
- Method:
 Column of the first year: based on last column of the table of Balance Sheet
December 31 last year.
 Columns Based on the year-end balances with Acc 335
On the statement of operations.
Indicators COGS: This indicator reflects the total cost of goods and real estate
investment production cost of finished products sold direct costs of volume fulfillment
services provided other costs are included in the price capital or reduce the cost of goods
sold in the reporting period.
Report data base business results last year the accounting books related to Account 6
Acc9 categories.
Method:
 Columns of this year based on the cumulative incurred reciprocal Account 632
Account 911 debts incurred by the months in the period.
 Columns of last year based on the data column this year's report on the results of
business activities in the target year COGS
It was found that the cost of goods sold is now built only based on the
production cost of the product cost of goods sold should be sufficient to cover the
first expenses in cost of products so the target cost of goods sold on the statement
of operations reflects the production cost of the product.
Notes on the financial statements
 For additional information for items presented in the balance of this item clarifies
the accounting for the details presented on B01.
- 04 Inventories
Production costs of unfinished business (late first)
Finished goods (end of first year)
- 17 Accrued expenses Accrued salary expenses in vacation time (late first)
Fixed assets overhaul expenses payable
- 18 Other short-term payable
Social Insurance (end of first year)
Health Insurance (last in first year)

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  Additional items of information for items presented in the statement of operations.
This section clarifies the criteria presented in B02.
- 28 Cost of goods sold
Cost of finished products sold (the previous year, this year)
- 33 The production cost business as factors
Costs of raw materials (this year, the previous year)
Labor costs (this year, the previous year)
Cost Depreciation and amortization (this year, the previous year)
Cost of services purchased (this year, the previous year)
1.2.5. Accounting for manufacturing costs and cost of finished goods in terms
of the accounting software (Tạ Linh + Liên)
Accounting software is applied to accumulate production costs and measure
price for each particular cost object. Therefore, on the process of updating data,
the users always have to update all costs incurred related to the production cost of
a specific cost object at the beginning of accounting period.
That the original information will create detailed data files and aggregated
data files would help the users conduct certain steps as instructed, the program
subsequently will do the synthesis, processing and transfering. Then the users can
view or print the price of each type of product as required.
The aggregation of production costs from related accounting parts is
conducted entirely by the self-assembling program. The software itself can
accumulate and allocate the production costs in the period according to each cost
item. Therefore each cost item must be encoded in details at the beginning
relatively to the cost objects. When entering data on production costs such as: raw
material costs, labor costs, depreciation costs, cash costs and other general
production costs ... if the costs can be directly aggregated (as a kind of product), it
is required to indicate its cost object. For production costs that are not directly
aggregated and involves many other costs, there is a need for allocations.
According to the basis of the result of physical inventory counts, we
calculate the value of work-in-process left at the closing of the period through
manufacturing cost objects. These data will be posted on the accounting software
and be used to recognize cost incurred in the period relating finished goods.
- Adjusting, closing and transfer entries are being done with the basis of installed
automatic program.
- Tracking the necessary financial statements are being conducted under
requirement of users. Accounting process for manufacturing costs and cost of
finished goods in terms of the accounting software would be as follows:

28
29
 Framework for accounting manufacturing costs and cost of finished goods

Input Solving Output

Vouchers: Database – Cost - Financial

- Good receipt management module statements.
notes ↓ - Managerial
- VAT invoice General journal report.
- Delivery note ↓
Ledgers and Books of
accounts: 621, 622, 627,
154, 152, 155,
↓
+ Price cards
+ Books of
manufacturing cost
+ Cost accumulation
sheet

 Sequence of accounting information processing for manufacturing cost and

cost of goods sold:
- Step 1:
 Accounting for manufacturing overhead: Post the data of direct materials
(Vouchers: material delivery notes,)
 Accounting for salary and wages: Post the data of direct labor (Voucher:
Payroll, Allocation table wages and social insurance, payment vouchers,)
 Accounting for cash and fixed assets: Post the data of manufacturing
overhead (Voucher: Allocation table wages, payment vouchers,)
 Post the costing figures of ending work in progress (Voucher: Work in
progress and finished goods records,)

30
 - Step 2: Enter inputs of manufacturing cost on general data folder for
manufacturing cost.
- Step 3: Automatic solving: closing and application entries relating respective
criteria.
The accounting software subsequently supplies outputs for costing measurement
including:
 Ledgers, subsidized books of expenses accounts, account 154, account 155,
journals, …
 Manufacturing cost report
 Cost of goods sold report.

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