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Theoretical Basis of Traditional Costing Method and Activity Based Costing Method (Abc)

1.4. Research object and scope

1.4.1. Research subjects

Focus on researching product costing methods according to management accounting approaches, focusing on the ABC method.

1.4.2. Time scope

- Research period: from February 6, 2017 to May 12, 2017.

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- Data used in the topic: December 2016.

1.4.3. Spatial scope

Theoretical Basis of Traditional Costing Method and Activity Based Costing Method (Abc)

The research topic focuses on Ca Mau Seafood Processing and Import-Export Joint Stock Company (Camimex).

1.5. Thesis structure

The thesis consists of 5 chapters: Chapter 1: Overview.

Chapter 2: Theoretical basis of traditional costing method and activity-based costing method (ABC).

Chapter 3: Current status of traditional product costing and application of ABC costing method at Ca Mau Seafood Processing and Import-Export Joint Stock Company (Camimex).

Chapter 4: Comments and comparison of traditional pricing method and ABC pricing method at Ca Mau Seafood Processing and Import-Export Joint Stock Company (Camimex).

Chapter 5: Conclusion and recommendations.

CHAPTER 2: THEORETICAL BASIS OF TRADITIONAL PRICING METHOD AND ACTIVITY-BASED PRICING METHOD (ABC)

(The enterprise is applying the accounting regime according to Circular 200/2014/TT-BTC)

2.1. Overview of traditional pricing methods

2.1.1. Production costs

2.1.1.1. Concept of CPSX

Production costs include many different items such as: raw material costs, labor costs, fixed asset depreciation costs, etc. Generally speaking, production costs are the costs of materialized labor and live labor in a production and business period.

- Materialized labor is the objects of labor (raw materials in general), means of labor (fixed assets, tools and equipment).

- Living labor is salary and deductions for social insurance, trade union funds, health insurance, and unemployment insurance expressed in monetary form.

2.1.1.2. Classification of production costs

To better serve production management and product cost accounting, businesses must classify costs and there are many ways to classify:

- Classification of production costs by factors: Includes 5 factors:

+ Raw material cost: Includes the total value (including purchase price, purchase cost) of raw materials, main materials, auxiliary materials, fuel, spare parts, tools and equipment used in production and business activities during the reporting period.

+ Labor costs: Are expenses for salaries paid to employees, social insurance deductions, health insurance, and union fees based on employees' salaries.

+ Fixed asset depreciation costs: Includes depreciation costs of all fixed assets used in the enterprise's production and business activities during the period.

+ Cost of external services: Includes all costs the enterprise has paid for services purchased from outside such as electricity, water, telephone, cleaning and other services serving the enterprise's production and business activities during the reporting period.

+ Other cash expenses: Including all other expenses used for production and business activities not reflected in the above indicators, paid in cash during the reporting period such as receiving guests, meetings, advertising rentals, etc.

- Classify production costs by item: Includes 3 items:

+ Direct material cost: This cost item includes raw materials and materials used directly for manufacturing the product. In which, the main raw materials are used to form the main entity of the product and other auxiliary materials have the effect of combining with the main raw materials to complete the product in terms of quality and shape.

+ Direct labor costs: This cost item includes salaries paid to the production workers and their salary deductions included in the cost. It should be noted that the salary costs and salary deductions of the workers serving the general operations of the production department or the management staff of the production departments are not included in this cost item but are counted as part of the general production cost item.

+ General production costs: Are costs incurred within the workshop to serve or manage the product manufacturing process. This cost item includes: material costs serving the production process or production management, salaries and salary deductions of workshop management staff, depreciation costs, costs of outsourced services serving production and management in the workshop, etc.

In addition to the above two classification methods, production costs are also classified according to a number of other criteria:

- Initial costs and conversion costs.

- Direct costs and indirect costs.

- Fixed costs and variable costs.

- Last year's costs and this year's costs.

- Pending allocation costs and pre-deductible costs.

2.1.1.3. Objects of production cost collection:

- Direct material costs.

- Direct labor costs.

- General production costs

Direct material cost

- Direct material costs include all costs of main materials, auxiliary materials, purchased semi-finished products, fuel, etc. used directly for the product manufacturing process.

- Direct materials used to produce each type of product are grouped into costs for each type of product.

- Direct materials used to produce many types of products must be collected together and before summing the costs to calculate the cost price, they must be allocated to each costing object.

Account used:

- Use account 621 - Direct material costs.

- This account has no ending balance.


152 621 154


Export raw materials for product manufacturing

At the end of the period, transfer the cost of raw materials and direct materials.

111, 112, 331

152

Buy raw materials for immediate use in product manufacturing

Excess raw materials not used up in warehouse

133

632

VAT deductible

Direct material costs above normal


Diagram 2.1: Diagram of accounting for direct material costs

Direct labor costs

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Direct labor costs include all expenses related to the labor department directly producing products such as: salaries, wages, allowances; deductions for social insurance, health insurance, trade union fees, unemployment insurance included in expenses according to regulations.

Account used:

- Use account 622 - Direct labor costs.

- This account has no ending balance.

334 622 154

Wages paid to production workers who directly produce products

C

335


Leave pay Advance leave pay for leave pay for workers for workers

manufacture

At the end of the period, transfer direct labor costs

632

Direct labor costs above normal

338



Social insurance, health insurance, unemployment insurance deduction

KPCD for production workers

Diagram 2.2: Diagram of direct labor cost accounting

General manufacturing costs

- General production costs are costs incurred at the manufacturing enterprise, serving the general production and manufacturing process, except for direct material costs and direct labor costs.

Account used:

- Use account 627 - General manufacturing costs.

- This account has no ending balance. The account has the following detailed accounts:

- Account 6271 - Workshop staff costs.

- Account 6272 - Material costs.

- Account 6273 - Production tool costs.

- Account 6274 - Fixed asset depreciation expenses.

- Account 6277 - Cost of outsourced services.

- Account 6278 - Other cash expenses


334, 338 627 154


Workshop staff costs (Salary, Social Insurance, Health Insurance, Unemployment Insurance, Union Fees)

152, 153, 242

At the end of the period, transfer general production costs into the cost of products and services.

Cost of materials and production tools

214

Fixed asset depreciation costs

111, 112, 138

111, 112, 331

Outsourcing service costs

Revenue reduction expenses

133

VAT

111, 112

Other cash expenses 111, 112, 335, 242

Borrowing costs payable

(if capitalized)


Diagram 2.3: Diagram of general production cost accounting

2.1.2. Product cost

2.1.2.1. Concept of product cost

Product cost is the total production cost that the enterprise has spent to create a volume of products and services completed during the period. Cost reflects the quality of the entire production and business activities, and the financial and economic management of the enterprise, reflecting the efficiency of production and production services.

2.1.2.2. Product cost classification

- Classification by time and cost calculation data basis:

Includes 3 types:

+ Planned cost: is the cost determined before starting production of the planning period based on the norms and cost estimates of the planning period.

+ Standard cost: is the cost determined based on current cost standards at a certain point in time during the planning period.

+ Actual cost: is the cost determined based on actual expenses during the period to carry out the product manufacturing process.

- Classification by calculation scope: Includes 2 types:

+ Production cost (factory cost).

+ Total cost (cost of sales).

2.1.2.3. Subject of product cost calculation

Are products, semi-finished products, completed jobs or services that require unit cost determination.

2.1.2.4. User account

- Account 154 – Cost of production and business in progress is used to reflect the total cost of production and business serving the purpose of calculating product cost in production units (industry, construction, agriculture, forestry, fishery, etc.) or in service business units (transportation, post, tourism, hotels, etc.), processing or providing services of commercial enterprises, if these types of activities are organized.

Diagram 2.4: Diagram of accounting for unfinished production and business costs

621 154 152


Carry over material costs


622


Carryover of NCTT costs

Finished processed goods and materials are stored in warehouse.


138,334

The value of the damaged product that cannot be repaired must be compensated by the damaged person.


623

Carry over construction machinery usage costs

641,642,241

Manufactured products are used for internal consumption or for construction contracts without being put into storage.


241

Trial production costs are less than the amount recovered from the sale and liquidation of trial production products.

111,112,331



Construction contracts do not go through warehouse

CKTM, GGHB are entitled to corresponding to the amount of exported raw materials used to produce unfinished products.

111,112,131

Recall of trial production products



Trial production costs are greater than the amount recovered from the sale and liquidation of trial production products.

241


627


Transferring production costs into product cost

155


Finished products in stock

Origin of finished product

Products and services completed and consumed immediately


632

Fixed general manufacturing costs not allocated to product cost are recorded in cost of goods sold.

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