The original price of inventories consists of the purchasing cost

The original price of inventories consists of the purchasing cost, processing cost and other directly-related costs incurred for having the inventories stored in the present place and conditions.

Purchasing cost

accounting-services-in-vietnam206. The purchasing cost of inventories consists of the buying price, non-refundable taxes, transportation cost, loading and unloading cost, preservation cost incurred in the buying process and other costs directly related to the purchase of the inventories.

Trade discounts and reductions in the prices of purchased goods due to their wrong specifications and/or inferior quality, shall be deducted from the purchasing cost.

Processing cost

07. The processing costs of inventories consist of those directly related to the manufactured products, such as cost of direct labor, fixed and variable general production costs incurred in the process of turning raw materials and materials into finished products.

Fixed general production costs means indirect production costs, which are often invariable regardless of the volume of manufactured products, such as depreciation cost, maintenance cost of machinery, equipment, workshops… and administrative management cost at production workshops.

Variable general production costs means indirect production costs, which often change directly or almost directly according to the volume of manufactured products, such as costs of indirect raw materials and materials, cost of indirect labor.

08. Fixed general production costs shall be allocated into the processing cost of each product unit on the basis of the normal production capacity of machinery. Normal capacity is the average quantity of products turned out under normal production conditions.

accounting-services-in-vietnam1– Where the quantity of actually-manufactured products is higher than the normal capacity, the fixed general production costs shall be allocated to each product unit according to actually incurred costs.

– Where the quantity of actually-manufactured products is lower than the normal capacity, the fixed general production costs shall be allocated into the processing cost of each product unit only according to the normal capacity. The unallocated amount of general production costs shall be recognized as production and business expense in the period.

The variable general production costs shall be entirely allocated into the processing cost of each product unit according to the actually incurred costs.

09. Where various kinds of products are manufactured in a single production process in the same duration of time and the processing cost of each kind of product is not separately expressed, the processing cost shall be allocated to those kinds of products according to appropriate and consistent norms in all accounting periods.

Where by-products are turned out, their value shall be calculated according to the net realizable value and subtracted from the processing cost already calculated for the principal products.