Account 627 – Manufacturing overhead costs
1. Accounting Principles
This account is used to record costs for production, and trading incurred in factories, departments, teams, constructions, served manufacturing productions, rendering services, 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 other factories ;
b) Activities of construction business, appropriation of social insurance, medical insurance, labor union fees are also calculated on wages of direct workers in construction, employees operating machinery and managerial employees of teams (belong to labor list of business), depreciation of fixed assets in factory, production departments; can be capitalized it will be added to value of assets which are in process of production; costs of repairing and warranty of construction, and other costs related to activities of factories, departments, production teams and groups.
c) 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.
d) Account 627 is recorded by detailed accounting for every factory, department, team and group of production
dd) 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.
e) 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.
g) At end of period, accountants calculate and allocate, transfer manufacturing overhead cost to Dr 154 ―Work in process‖ or at Dr 631 ―Cost of production‖.
h) Account 627 is not used for commercial business activities.

2. Structure and contents of account 627 – Manufacturing overhead cost

Debit side : Manufacturing overhead costs incurred in the period
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 154 ―Work in process‖ or Dr 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: Record salaries, allowances to salary payables for managerial employees in factories, production department, expenses of intershift meals of factory managerial employees, production department, appropriation of social insurance, medical insurance, labor union fees, unemployment insurance calculated with current stipulations on salary payables for employees in factory, department, team and group of production.
- Account 6272 - Cost of materials: Record cost of materials delivered for factories, such as materials used for repair, maintenance fixed assets, instruments, tools managed and used by factories, costs of temporary goods shed.
- Account 6273 - Cost of production tools: Record cost of instrument, tools delivered for use in management activity of factory, department, team and group of production,...
- Account 6274 - Depreciation costs of fixed assets: Record depreciation expenses of fixed assets used for manufacturing products and rendering services, and fixed assets used in common for activities of factory, department, team and group of production.
- - Account 6277 - Costs of outsourced services: record costs of outsourced services for activities in production factory, such as: cost of repair, outsourcing, water and electricity, telephone, fixed asset rent, charges paid for subcontractors (for construction business).
- Account 6278 - Other cash expenses: Record other cash expenses beside costs listed above, serving activities of factories) department, team and group of production.

3. Method of accounting for several major transactions
When calculating salaries, wages, subsidiaries payables for employees in factory, inter shift meal costs of managerial employees in factory, department, team and group of production.
Dr 627 – Manufacturing overhead cost (6271)
Cr 334 - Wages payable
b) When appropriations of social insurance, medical insurance, labor union fees, unemployment insurance, support for workers (life insurance, voluntary pension insurance) which are calculated with stipulated rate on salary payables for employees in factory, production department.
Dr 627 – Manufacturing overhead cost (6271)
Cr 338 - Other payables (3382, 3383, 3384, 3386).
c) Cost Accounting of raw materials, materials delivered for use in factory (in case business implements perpetual inventory method).
- When delivering materials used in common for factories, such as repairing, maintenance of fixed assets used in administrating activities of factory, record:
Dr 627 – Manufacturing overhead cost (6272)
Cr 152 - Raw materials, materials
- When delivering instruments, tools for production with small total value used for factory, departments, team and group of production, accountants will base on delivery order, record :
Dr 627 – Manufacturing overhead cost (6273)
Cr 153 - Instruments, tools.
- When delivering instruments, tools for production with great total value used for factory, departments, team and group of production, this value must be allocated, record :
Dr 242 - Prepaid expenses
Cr 153 - Instruments, tools.
- When allocating value of instrument, tools to overhead costs, record:
Dr 627 – Manufacturing overhead cost (6273)
Cr 242 - Prepaid expenses
d) Depreciation of machinery, equipment, plant belonging to factory, department, team and group of production, record:
Dr 627 – Manufacturing overhead cost (6274)
Cr 214 – Depreciation of fixed assets
dd) Water and electricity, telephone expenses belong to factory, department, team and group of production, record:
Dr 627 – Manufacturing overhead cost (6278)
Dr 133 - Deductible VAT (1331) (if eligible for VAT deduction)
Cr 111, 112, 331,...
e) In case applying advance charge method or deferred expenses method or deferred expenses method for amounts paid for great repair of fixed assets in factory, which are charged overhead cost:
- When great repair expenses of fixed assets are actually incurred, record:
Dr 2413 - Great repair of fixed assets
Dr 133 – Deductible VAT ( if any)
Cr 331, 111, 112,...
- When great repair of fixed assets is finished, record:
Dr 242, 352
Cr 2413 - Great repair of fixed assets
- When great advance appropriation or deferred expenses of fixed assets repair is made, record:
Dr 627 – Manufacturing overhead cost (6273)
Cr 352,242.
g) In case business having fixed assed for operating lease, when costs incurred relating to fixed assets which are operating leased:
- When initial direct costs incurred relating to operating lease, record :
Dr 627 – Manufacturing overhead cost
Dr 133 – Deductible VAT ( if any)
Cr 111, 112, 331,...
- Periodic calculation and depreciating of fixed asset which is operating leased to operating cost, record:
Dr 627 – Manufacturing overhead cost
Cr 214 - Depreciation of fixed assets (Depreciation of fixed assets for lease).
h) In construction business, when determining provision for payables of warranty of construction works, record:
Dr 627 – Manufacturing overhead cost
Cr 352 - Provision for payables
- When incurring costs of repair and warranty of construction works, record:
Dr 621, 622, 623, 627
Cr 111, 112, 152, 214, 334,...
- At end of period, close out costs of repair and warranty of construction works, record:
Dr 154 – unfinished production, business cost
Cr 621, 622, 623, 627.
- When repair and warranty of construction works are finished, record :
Dr 352 - Provision for payables
Cr 154 - Work in process.
i) At end of accounting period, determining interests payables or interests already paid capitalized into unfinished manufacturing assets when paying interests, record :
Cr 627 – Manufacturing overhead cost (unfinished manufacturing assets)
Cr 111, 112
Cr 242- Prepaid expenses ( if interest is prepaid)
Cr 335 – Expenses payable ( interest payable)
Cr 343 - Bonds issued (cost of issuing bonds and the difference between the interest of bonds payable calculated at a real interest rate higher than the interest payable calculated at nominal rates recorded an increase in the original bond ).
k) If incurring decreases in manufacturing overhead cost, record :
Dr 111, 112, 138,...
Cr 627 – Manufacturing overhead cost
l) For manufacturing overhead cost used generally for business cooperation contract
- When incurring manufacturing overhead costs generally used for business cooperation contracts, based on invoices and related documents, record:
Dr 627 – Manufacturing overhead costs ( details for each contract)
Dr 133 - Deductible VAT
Cr 111, 112, 331...
- Periodically, accountants establish general cost allocation Statement (with the confirmation of the parties) and deliver VAT invoices to allocate the manufacturing overhead cost used generally for business cooperation contract for the parties, record :
Dr 138 - Other receivables (details for each partner)
Cr 627 – Manufacturing overhead cost
Cr 3331 - payable VAT
In case of distribution of costs without VAT invoices, accountant record a decrease of input VAT by recording Cr 133 - deductible VAT.
m) At end of account period, table of manufacturing overhead cost allocation will be based to transfer or allocate overhead cost to related accounts for each products, group of products, services with proper grouping characteristic:
- In case business applies perpetual inventory method when closing out overhead cost at end of period, record:
Dr 154 – unfinished production, business cost
Dr 632 - Cost of goods sold (fixed manufacturing overhead cost not unallocated)
Cr 627 – Manufacturing overhead cost
- In case business applies perpetual inventory method when closing out overhead cost at end of period, record:
Dr 631 - Cost of production
Dr 632 - Cost of goods sold (fixed manufacturing overhead cost not unallocated)
Cr 627 – Manufacturing overhead cost

Source: Circular 200, Article 87