Cost Accounting Standard

Topics: Cost accounting, Costs, Cost Pages: 6 (1730 words) Published: June 19, 2013
of determining the Overheads.
1.2 This standard deals with the principles and methods of classification, measurement and assignment of Overheads, for determination of the cost of product or service, and for the presentation and disclosure in cost statements.

2. Objective
The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the Overheads with reasonable accuracy. 3. Scope
This standard shall be applied to cost statements, which require classification, measurement, assignment, presentation and disclosure of Overheads including those requiring attestation. 4. Definitions:

The following terms are being used in this standard with the meaning specified. 4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular and unexpected and / or due to some abnormal situation of the production or operation.2 4.2 Absorption of overheads: Absorption of overheads is charging of overheads to Cost Objects by means of appropriate absorption rate.

1 This revised Cost Accounting Standard comes into force w.e.f. 1st April 2012 and supersedes the Cost Accounting Standard - 3 on Overheads issued by the Council on 3rd January 2003.)
2 Adapted from CAS 1 paragraph 6.5.19
The Cost Accounting Standards Board (CASB)
Page 2 of 7
Overhead Absorption Rate = Overheads of the Cost object / Quantum of base. 4.3 Administrative Overheads: Cost of all activities relating to general management and administration of an organisation.

Administrative overheads shall exclude production overheads, marketing overheads and finance cost. Production overheads include administration costs relating to production, factory, works or manufacturing.3

4.4 Cost Centre: It is an organisational unit, in relation to which costs are accumulated. A cost centre includes a process, function, activity, location, item of equipment, group of persons or any other unit in relation to which cost are accumulated. 4.5 Cost Object: This includes a product, service, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which cost are ascertained.4

4.6 Distribution Overheads: Distribution overheads, also known as Distribution Cost, are the cost incurred in handling a product from the time it is ready for dispatch until it reaches the ultimate consumer.5

Examples of Distribution Overheads are Cost towards Secondary Packing, Transportation of Finished Goods, Warehousing of Finished Goods, Delivering the Finished Products to Customers, Clearing & Forwarding and Mending or Replacing Packing Materials at Distribution Point.

4.7 Imputed Cost: Hypothetical or notional cost, not involving cash outlay, computed for any purpose. 6
4.8 Indirect Employee Cost: The employee cost, which cannot be directly attributed to a particular cost object.7
3 From CAS 11 paragraph 4.3
4Adapted from CIMA Terminology
5
From CAS 9 paragraph 4.7
6Adapted from CAS 1 paragraph 6.5.13
7Adapted from CAS 1 paragraph 6.2.10
The Cost Accounting Standards Board (CASB)
Page 3 of 7
4.9 Indirect Expenses: Expenses, which cannot be directly attributed to a particular cost object.8
4.10 Indirect Material Cost: Materials, the cost of which cannot be directly attributed to a particular cost object.9
4.11 Marketing Overheads: Marketing Overheads comprises selling overheads and distribution overheads.10
4.12 Normal capacity: Normal Capacity is the production achieved or achievable on an average over a number of periods or seasons under normal circumstances taking into account the loss of capacity resulting from planned maintenance.11

4.13 Overheads: Overheads comprise costs of indirect materials, indirect employees and indirect expenses which are not directly identifiable or allocable to a cost object in an economically feasible manner.

Overheads shall be classified on the basis of functions to which the overheads are related. For example:
• Production Overheads...
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