Cost Accounting Standards are a set of 33 standards defined and used by the Institute of Cost Accountants of India for determining costs on negotiated procurements. The objective of these standards is to bring uniformity and consistency in the principles of cost classification, disclosure, and presentation in cost statements for products or services.
These standards are applied to cost statements that require classification, presentation, and disclosure of costs, including those requiring attestation.
Definitions
1. Abnormal Cost
Abnormal cost is an unusual or a typical cost whose occurrence is usually irregular and unexpected, often due to abnormal production or operational situations beyond the project manager’s control. Abnormal costs can occur under normal operating conditions (e.g., defects, rejects, scrap, waste, spoilage) or in unexpected situations such as pandemics.
2. Administrative Overheads
The costs associated with general management and administration of an entity, including:
- Salaries for office staff
- Office supplies
- Rent
- Utilities
- Insurance
- Legal and audit fees
- Subscriptions
- Strategic planning expenses
- Depreciation on buildings and machinery
Exclusions: Production, marketing, interest, and finance charges are excluded from administrative overheads. Administrative costs relating to production, factories, or manufacturing are also excluded.
3. Classification of Cost
Costs can be classified by function, behavior, and traceability, such as:
- Fixed vs. Variable Costs
- Direct vs. Indirect Costs
- Controllable vs. Uncontrollable Costs
- Opportunity Costs
- Conversion Costs
- Semi-Variable Costs
The purpose of classifying costs is to help businesses record and analyze their finances effectively.
4. Conversion Cost
The production cost excluding direct material costs. It represents expenses incurred in transforming raw materials into finished products, including direct labor and overhead costs.
5. Cost
Cost is a measurement in monetary terms of resources used to produce goods or services. This includes both direct costs (e.g., raw materials, direct labor) and indirect costs (e.g., factory overhead).
6. Cost Centre
A unit within an entity designated for accumulating costs. Types include:
- Impersonal Cost Centre: Handles costs not attributable to specific individuals (e.g., R&D department).
- Operation Cost Centre: Focuses on machines or activities (e.g., IT department).
- Personal Cost Centre: Handles expenses related to personnel (e.g., HR department).
- Product Cost Centre: Responsible for product development and sales, covering costs such as R&D, raw materials, production line maintenance, and marketing.
- Process Cost Centre: Manages costs for specific processes (e.g., customer service, IT, HR).
- Service Cost Centre: Provides essential services within the organization (e.g., professional fees, data center charges).
7. Cost Object
An activity, contract, cost center, customer, process, product, or service for which costs are determined.
8. Cost of Production
The total cost incurred to produce goods or services, including materials, labor, production overheads, and quality control costs.
9. Cost of Transportation
The cost associated with freight, cartage, transit insurance, and fleet operations. It excludes detention and demurrage charges and is classified into:
- Inward Transportation: Costs related to inbound goods
- Outward Transportation: Costs related to outbound goods
10. Cost Unit
Cost measure is a measure of production volume for a product or service. Examples:
- Power: Megawatt (MW)
- Cement: Metric Ton (MT)
- Automobile: Number
- Transportation: Tonne-Kilometre (TKM)
11. Development Cost
Costs associated with applying research findings to produce new or improved products or services before commercial production, including construction and property acquisition.
12. Direct Employee Cost
Employee costs directly attributable to a cost object, including wages, allowances, and statutory contributions.
13. Direct Expenses
Expenses directly related to manufacturing a product or providing a service, excluding direct materials and direct employee costs. Examples:
- Royalties
- Job charges
- Hire charges for specific equipment
- Software services for specific jobs
14. Direct Materials
Raw materials and components directly attributable to a cost object. Examples include materials used in manufacturing and production costs.
15. Distribution Overheads
Distribution Overheads are the costs incurred from the point a product is ready for dispatch until it reaches the end consumer. Examples include:
- Delivery van expenses
- Transit insurance
- Secondary packing expenses
- Advertising
- Clearing and forwarding charges
16. Employee Cost
Expenditures incurred for employee services, including wages, allowances, bonuses, and benefits for temporary, part-time, or contract employees.
17. Fixed Costs
Costs that remain constant regardless of production levels. Fixed indirect costs are termed fixed overheads.
18. Indirect Employee Cost
Employee costs not directly attributable to a specific cost object.
19. Indirect Expenses
Indirect Expenses are the expenses that cannot be directly attributed to a specific cost object.
20. Indirect Materials
Indirect Materials are the materials whose costs cannot be directly attributed to a specific cost object.
21. Marketing Overheads
Marketable Overheads refers to the combined costs of selling and distribution activities.
22. Material Cost
The cost of materials used for production or service delivery.
23. Normal Capacity
Normal Capacity refers to the average production achievable over several periods under normal conditions, accounting for maintenance losses.
24. Overheads
Indirect costs comprising materials, employee expenses, and indirect expenses.
25. Packing Material Cost
The cost of materials used for product packaging, classified as:
- Primary: Essential for preserving the product
- Secondary: Used for storage, transportation, and marketing
26. Prime cost:
Prime cost is the aggregate of direct material cost, direct Employee cost and direct expenses.
27. Production Overheads
Indirect production costs, also known as factory, works, or manufacturing overheads. Examples include rent, utilities, maintenance, and depreciation.
28. Research Cost
Costs incurred for original investigations aimed at gaining new technical knowledge.
29. Selling Overheads
Indirect expenses incurred in selling products or services, including advertising, sales commissions, and travel expenses.
30. Semi-Variable Costs
Semi-Variable Costs include both fixed and variable elements, partially changing with activity levels.
31. Support-Service Cost Centre
Support-Service Cost Centre is a cost center that provides auxiliary services across the organization. Examples include IT, HR, quality assurance, and maintenance.
32. Standard Cost
A predetermined cost based on technical specifications and efficient operations, used as a reference to compare actual costs and analyze variances.
33. Variable Costs
Variable Costs are the costs that vary directly with production volume. Variable indirect costs are termed variable overheads.
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