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What is general production cost? How to account for account 627 according to Circular 200

General manufacturing costs accounts for a large proportion of total production costs, so controlling these costs well will help businesses reduce product costs, thereby increasing profits and competitiveness.

This article by Bizzi will help you better understand what general manufacturing costs are, their classification, role and how to account for account 627 most accurately.

What is the concept of manufacturing overhead?

Definition of manufacturing overhead by Circular 200/2014/TT-BTC is cGeneral production and business costs incurred in workshops, departments, teams, and construction sites. Not including direct material costs, direct labor costs, and construction machinery costs. General manufacturing costs are difficult to determine directly for each product. → must be allocated indirectly, that is why accountants must calculate carefully and reasonably to avoid cost deviation.

– The role of general production costs:

– Scope of application:

– Distinguish between general production costs and business management costs and sales costs:

For example: Office rental costs for the production team are production costs, while office rental costs for the accounting team, human resources, board of directors, etc. are business management costs.

Understand what general production costs are to help businesses increase profits and competitiveness.
Understand what general production costs are to help businesses increase profits and competitiveness.

Classification of general manufacturing costs

– Fixed general manufacturing costs:

Fixed manufacturing overhead are indirect costs that do not change with the number of products produced, including: machine depreciation, factory management salaries, factory rental costs, etc. This cost affected by mechanical wear and tear over time.

If actual product > normal capacity: Allocate according to actual costs incurred.

If actual product < normal capacity: Allocate according to normal capacity, unallocated portion is recorded in cost of goods sold in the period.

– Variable general manufacturing costs:

Are indirect costs that vary directly or almost directly with the quantity of products produced.

What are the general manufacturing cost items?

– Factory staff costs:

– Material costs:

– Cost of production tools:

– Outsourcing service costs (Regarding outsourcing service costs)

– Other cash expenses:

Accounting accounts used

– Account 627 – General production costs:

– Level 2 accounts of account 627:

– Formula for calculating general manufacturing costs:

Production cost = Factory staff cost + Material cost + Production equipment cost + Fixed asset depreciation cost + Outsourced service cost + Other cash costs.

Important Note:

How to account for account 627 - general production costs

– Employee cost accounting:

– Material cost accounting:

– Accounting for depreciation costs:

– Accounting for outsourced service costs:

– Accounting for pre-accrued expenses:

– Accounting for leased fixed assets costs:

– Accounting for incurred costs payable for construction warranty:

– Accounting for borrowing costs payable and break-even:

– Accounting for production cost reductions:

– Accounting for production costs used for business cooperation contracts:

– Final accounting:

Methods of allocating manufacturing overhead costs

Manufacturing overhead (CPSXC) is an indirect cost, not associated with a specific product, so need rational allocation into price for accurate calculation. Below are common methods of allocating general manufacturing costs according to each type of business:

– Single-piece manufacturing businesses, according to orders

– Mass production and continuous production enterprises

– Service businesses

Manufacturing overhead is an indirect cost that is not tied to a specific product.

How to cut and optimize overall production costs

In the era of strong technological development, businesses can take advantage of modern technologies and smart management strategies to reduce overhead (CPSXC) without affecting product quality.

So what are the ways to cut and optimize? What is manufacturing overhead?? Find out below:

– Automation and digitalization of production processes and machinery

– Integrating AI & Big Data in general production cost management 

– Application of warehouse management technology (WMS – Warehouse Management System)

– Apply Lean Manufacturing to optimize overall production costs

– Smart energy usage (EMS – Energy Management System) 

Summary of technologies to be applied to:

What is manufacturing overhead in management accounting?

– Reasonable product pricing: General production costs are an important factor in product cost, helping businesses set reasonable selling prices.

– Support the production process: Provides a basis for making decisions about product production, quantity, and timing to optimize profits.

– Performance and efficiency assessment: Reflects production performance, helps businesses detect waste and save costs.

– Support investment decisions: Evaluate the feasibility and effectiveness of new projects or production expansion.

– Effective budget planning:Basis for budget planning related to general production activities.

– Provide information for management reports: Shown in important management reports such as income statements and cost management reports.

– Comparison between management accounting and conventional accounting:

Contact Bizzi for effective production cost control

Effective management of overhead costs requires long-term planning, close monitoring and the application of technology. If optimized well, businesses can reduce product costs, increase profits while maintaining quality. 

Technology is the key to streamlining and automating the process. business cost management, contributing to sustainable success in today's competitive landscape. Bizzi is a comprehensive cost management platform, the leading solution chosen by talented leaders. 

Bizzi helps businesses control production costs effectively

Bizzi Expense is a trusted partner of businesses such as MASAN Group, kewpie, Pierre Fabre with many outstanding advantages such as: 

Ready to take control of your business finances? Schedule a demo with Bizzi today and discover how our innovative solutions can help you navigate the complexities of manufacturing overhead management with ease.

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