Manufacturing Accounting in Uzbekistan: Product Costing and Work in Progress

Production accounts under NAS No. 21

The chart of accounts has a separate group for production. A company builds its working chart of accounts on this basis and sets it out in its accounting policy.

• 2010 "Main production" — costs of producing the main products, works and services;
• 2110 "Own semi-finished products";
• 2310 "Auxiliary production" — energy, transport, repair of fixed assets, making tools and the like for main production;
• 2510 "Production overheads" — maintaining and running equipment, depreciation and repair of production fixed assets, heating and lighting of workshops, rent, pay of workshop service staff;
• 2610 "Production defects", 2710 "Service units";
• 2810 "Finished goods in the warehouse", 2820 — on display, 2830 — transferred under a commission agreement.

How costs are collected

Direct costs — materials, pay of production workers and others — are charged from the inventory and payroll accounts to the debit of account 2010. Auxiliary production costs (from 2310), production overheads (from 2510) and losses from defects (from 2610) are also transferred there.

Costs are included in the cost of the period to which they relate, regardless of when they are paid — whether it is prepaid rent or an additional payment under an expense report (para 118 of NAS No. 21).

Allocating production overheads

Account 2510 collects indirect workshop costs that cannot be assigned to a specific product right away. At month-end they are allocated to 2010 and 2310. NAS No. 21 leaves the allocation method between cost objects to the company — it is set in the accounting policy.

In practice, companies choose the base that best reflects resource consumption: direct labour, machine hours, direct material costs or output volume in physical units. What matters is that the chosen base is applied consistently and described in the accounting policy; otherwise the cost of different months is not comparable.

Unit costing

Analytical records on account 2010 are kept by type of cost and type of product. Grouping by cost centre and costing may be kept in a separate system of accounts; the organisation determines their composition and method itself, taking into account its production, structure and management.

A typical monthly calculation runs as follows.

• collect direct costs for each product type (from material requisitions and job orders);
• allocate auxiliary production costs and production overheads to output using the base from the accounting policy;
• add opening work in progress to the month's costs and deduct closing work in progress;
• divide the resulting actual cost of output by the number of units produced;
• compare with the standard costing and analyse variances by line item.

Work in progress

The month-end balance on account 2010 shows the cost of work in progress (para 119 of NAS No. 21). Its valuation directly affects the cost of output: overstated WIP "hides" costs in the balance sheet, understated WIP shifts them onto current production.

Products handed over to customers on site and not documented by an acceptance act remain in work in progress (para 137). Under the Regulation on Cost Composition, inventories and work in progress are valued in accordance with the Law on Accounting. The valuation method — actual cost, standard cost or direct items — should be set in the accounting policy and supported by counting WIP.

Output and sale of finished goods

The actual cost of completed products is transferred from the credit of 2010 to the debit of 2810 "Finished goods in the warehouse" or directly to 9110 "Cost of finished goods sold" or 9130 "Cost of works performed and services rendered". On account 2810 products are carried at actual production cost (para 138).

Works and services for third parties do not pass through finished goods accounts — their actual costs go straight to 9130. Management and selling costs are not included in product cost — they are period expenses. In serial production of homogeneous products, exceptional or one-off costs caused by emergencies are also excluded from the cost of finished goods and are written off directly as selling expenses.