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Material Cost

CAS - 06 - Companies Law - CAS - 06 - CAS - 6 The following is the COST ACCOUNTING STANDARD 6 (CAS-6) issued by the Council of The Institute of Cost and Works Accountants of India on "". In this Standard, the standard portions have been set in bold italic type. This standard should be read in the context of the background material, which has been set in normal type. 1. Introduction 1.1 This standard deals with principles and methods of determining the . Material for the purpose of this .....

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closure in cost statements. 1.3 The Standard deals with the following issues: u Principle of Valuation of receipt of materials. u Principle of Valuation of issue of materials. u Assignment of to cost objects. Objective 2. The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the with reasonable accuracy. Scope 3. This standard should be applied to cost statements which require classification, measurement, assignment, presentation and d .....

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ce, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which costs are ascertained.] 4.4 Defectives - End Product and/or intermediate product units that do not meet quality standards. This may include reworks or rejects. 4.4.1 REWORKS - Defectives which can be brought up to the standards by putting in additional resources. Rework includes repairs, reconditioning and refurbishing. 4.4.2 REJECTS - Defectives which cannot meet t .....

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cannot be directly attributed to a particular cost object] 7[4.7 - The cost of material of any nature used for the purpose of production of a product or a service.] 4.8 Production overheads - Indirect costs involved in the production process or in rendering service.] The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denote the same meaning and are used interchangeably. 9[4.9 Scrap - Discarded material having some value in few cases and which is usuall .....

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results is measured and responsibility for deviation is placed.10 Standard costs are used to compare the actual costs with the standard cost with a view to determine the variances, if any, and analyse the causes of variances and take proper measure to control them. 4.11 Waste and spoilage: 11[4.11.1 WASTE - Material loss during production or storage due to various factors such as evaporation, chemical reaction, contamination, unrecoverable residue, shrinkage, etc., and discarded material which .....

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, insurance, and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited by the taxing authorities) that can be quantified with reasonable accuracy at the time of acquisition. Examples of taxes and duties to be deducted from cost are Cenvat credits, credit for countervailing customs duty, sales tax set off/VAT credits and other similar items of credit recovered/ recoverable. 5.1.2 Finance costs incurred in connection .....

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not be taken to inventory, but shall be capitalized with the cost of the specific equipment. Cost of capital spares and/or insurance spares, whether procured with the equipment or subsequently, shall be amortised over a period, not exceeding the useful life of the equipment. 5.1.5 Normal loss or spoilage of material prior to reaching the factory or at places where the services are provided shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers, insurers, car .....

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till payment or otherwise shall not form part of the . Explanation: The date on which a transaction (whether for goods or services) is recognised in accounting in conformity with generally accepted accounting principles. 5.1.8 Any demurrage or detention charges, or penalty levied by transport or other authorities shall not form part of the cost of materials. 5.1.9 Subsidy/Grant/Incentive and any such payment received/receivable with respect to any material shall be reduced from cost for ascerta .....

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the . 5.2.4 Wherever, s include transportation costs, determination of costs of transportation shall be governed by CAS 5 - Cost Accounting Standard on Determination of Average (Equalized) Cost of Transportation. 5.2.5 may include imputed costs not considered in financial accounts - Such costs which are not recognized in financial accounts may be determined by imputing a cost to the usage or by measuring the benefit from an alternate use of the resource. 5.3 Self manufactured components and sub- .....

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ng the normal shall be adjusted in the of good production. of abnormal scrap /defectives should not be included in but treated as loss after giving credit to the realisable value of such scrap/defectives. Assignment of costs 6. The basis of assignment of costs to the cost of product or service is dealt within this section. 6.1 Assignment of costs - Materials 6.1.1 Assignment of s to cost objects - s shall be directly traced to a Cost object to the extent it is economically feasible and /or shall .....

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s payable to the third party shall be treated as part of the . 6.2.2 Wherever part of the manufacturing operations/activity is sub-contracted, the sub-contract charges related to materials shall be treated as direct expenses and assigned directly to the cost object. 6.3 Assignment of costs- Indirect materials 6.3.1 The cost of indirect materials shall be assigned to the various Cost objects based on a suitable basis such as actual usage or technical norms or a similar identifiable measure. 6.3.2 .....

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heads. E.g. u Raw materials, u Components, u Semi-finished goods and u Sub-assemblies 7.2 Direct Materials shall be classified as Purchased - indigenous, imported and self manufactured. 7.3 Indirect Materials shall be classified in the cost statement under suitable heads - Indirect materials may be grouped under major heads like tools, stores and spares, machinery spares, jigs and fixtures, consumable stores, etc., if they are significant. Disclosures 8. The following information should be disc .....

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