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GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON EMPLOYEE COST (CAS-7)

CAS - 07 - G Note - Rule - Companies Law - CAS - 07 - G Note - The Council of the Institute of Cost and Works Accountants of India (ICWAI) has issued the Cost Accounting Standard 7 (CAS-7) on Employee Cost which lays down a set of principles and methods of classification, measurement and assignment of Employee cost, for determination of the cost of product or service and the presentation and disclosure in the cost statements. The Guidance Note deals with principles and methods as provided in the .....

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e Companies Act, 1956 which is engaged in production, processing, manufacturing or mining activities have to maintain cost accounting records in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards issued by the ICWAI, to the extent these are found to be relevant and applicable. The above Rules further provide that these will be applicable to companies wherein: (a) aggregate value of net worth as on the last date of the immediately preceding fin .....

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Companies Act, 1956 for a company to certify inter alia that books and records maintained by the company are in conformity with the Cost Accounting Standards issued by the ICWAI to the extent these are found to be relevant and applicable. CHAPTER 1 INTRODUCTION Employee cost is a significant factor of cost of production. But, its significance is decreasing due to automation in production. However in knowledge based industry such as software industry, employee cost is the single most important f .....

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of free or concessional food, drink, fuel and other amenities. There are a number of other costs which do not appear in the payroll but are employee related cost such as: recruitment costs, training costs, relocation costs, support/social costs, and personnel administration costs. The employee cost is also sometimes termed as "Labour cost". Type of Employees: Employees in an entity may be categorized as: a. Daily rated worker/badli worker, piece rated worker, b. Monthly paid worker, c. .....

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system/manually. Payments made in cash or kinds to employees are categorized as: (i) Salaries/wages (ii) Allowances: Dearness allowance, House Rent allowance, Education Allowance, transport allowance, (iii) Bonus: Remuneration packages often include profit sharing or production bonus plans subject to fulfilment of certain pre-conditions. Payments under this head are: a. Statutory minimum bonus/sharing in surplus profit. The Payment of Bonus Act, 1965 deals with profit sharing bonus. It represen .....

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rt of employee cost. (iv) Contribution to provident and other funds: Entity covered under Provident fund and Employee's State Insurance scheme has to deduct specified contribution from the employee's wages and salaries. Such deductions are to be deposited with the Government agencies accompanied by corresponding contribution from the employer. For example if total deduction from employees during a period is ₹ 1.20 lakhs, the entity has to deposit ₹ 2.40 lakhs (Rs 1.20 lakhs f .....

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turn on the contribution made. If the actual yield on funds deployed happened to be lower than the notified rate, the shortfall is met by the employer. Thus an obligation is cast on employers to bear the difference, if any, between the notified rate, and the return generated by assets of such PF. Such shortfall forms part of employee cost. (vi) Employee welfare: These include facilities like subsidized canteen, cooperative stores, laundry and washing services, sports, housing schemes, transport .....

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s to which the Act applies. The employees are insured in a manner provided by the Employees' State Insurance Act 1948. The contribution payable to the E.S.I Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate. The rates are revised from time to time. Presently, the employees' contribution is 1.75% of the wages and that of employers' is 4.75% of the wages paid or payable in respect of the employees in .....

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injury and medical treatment etc. Dependants of the employees are also entitled to the benefits provided under the Act. (b) Statutory provisions for workman's compensation: In case a personal injury is caused to a workman by an accident arising out of and in the course of his employment, the employer is liable to pay compensation in accordance with the provision of the Workmen's Compensation Act, 1923. The amount paid towards such compensation also form part of employee cost. ♦ Med .....

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y at a future date at a predetermined price. The offer may be free of cost, or at concessional rates. Such benefit is in the form of: (a) shares, share options and other equity instrument issued to employee at less than fair value at which these instruments are issued to third parties; and (b) Cash payment, the amount of which will depend on the future market price of enterprise shares. The aggregate amount of such expenditure which would form part of the Employee cost on account of Employee sto .....

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sis of the employee's basic plus dearness allowance if any. As per the Payment of Gratuity Act 1972, the gratuity amount is 15 days' wages multiplied by the number of years service put in. It is calculated based on last salary drawn divided by 26 to work out per day rate. An employee should have minimum service of 5 years' service to earn gratuity. The maximum gratuity payable is 16 ½ months emoluments for the maximum of 33 years of service and for lesser service it is proport .....

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also assessed and provided on the above basis. ♦ Short term compensated absence (such as paid annual leave and paid sick leave) Employee is entitled for leave as per his term of employment. A part of leave lapses during the year and other part of leave is accumulated over a period as per policy of the entity. Leave may also be encashed during the service. Employee is also entitled for leave encashment at the time of termination of employment. It is the amount payable for the employee's .....

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required to be indicated in the Cost Accounting Records. Classification of Employee cost: Employee cost, on the basis of relation with a cost centre/cost object is classified direct employee cost, or indirect employee cost of product/service. Direct employee cost is that portion of wages and salaries which can be identified with and charged to a cost object. It may be classified as direct when: 1. There is a direct relationship to the product through a process or a costing unit; 2. The cost may .....

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distinction between direct and indirect employee is sometime difficult to establish. Early stages of technology witnessed a major role for the workmen in the manufacturing process with output being controlled mainly by the workmen's efforts. Hence elaborate systems were built to log workmen's time for an individual jobs or products and operations and employee cost was assigned on the basis of time booking and identified as direct employee cost. As technology developed, the importance of .....

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rilling machines, milling machines etc., and simple processing shops. In case where fully automatic machinery is used, the worker becomes in effect a machine tender. The machine alters the size or shape of the product, while the worker merely feeds the machine at intervals and makes minor adjustments. A question may arise a machine adjuster is a direct employee or an indirect employee. A distinction is to be made that if a man is tending a productive machine, his labour is as direct as the labou .....

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can, in some instances, be easily identified with and charged to specific jobs but in many cases the spraying is done on a conveyor belt with items from various jobs being sprayed as needed. In the latter case, to charge the paint spraying employee cost directly to the separate job may entail too much clerical detail and the employee cost may be allocated to various jobs on some equitable basis. Inspection employee may be considered direct employee or indirect employee depending upon the circum .....

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d more easily by treating them as indirect employee cost than by attempting to make a direct allocation through time tickets or time cards. The distinction between direct and indirect employee is necessary because direct employee efficiency is measured by the number of acceptable units completed, while the efficiency of other type of employee frequently has little relationship to the number of units produced. Therefore in the measurement of the efficiency of a particular worker, group of workers .....

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measured in terms of time (man hours/man days) and rate of payment. Measurement of Employee Cost is detailed under Chapter 3. Assignment is tracing the employees cost to a product or service and is dealt in Chapter 4. The principles and methods adopted for computation of employee cost in a cost statement shall be applied consistently from one period to another and for reasonable uniformity between different products/units. For example Employees working on machining operation are to be classifie .....

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some abnormal situations. Administrative overheads: Expenses in the nature of indirect costs, incurred for general management of an organization. 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. Direct Employee Cost: The cost of employees which can be attributed to a Cost Object in an economically feasible way. Distribution Overheads: Distribution o .....

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on behalf of employee. This is also known as Labour Cost. Idle time: The difference between the time for which the employees are paid and the employees' time booked against the cost object. Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed for any purpose. Indirect Employee Cost: The cost which cannot be directly attributed to a particular cost object. Marketing overheads: Marketing Overheads are also known as Selling and Distribution Overheads. Overtime Prem .....

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. Standard Cost: A predetermined cost of resource inputs for the cost object computed with reference to set of technical specifications and efficient operating conditions. CHAPTER 3 PRINCIPLES OF MEASUREMENT 5.1 Employee Cost shall be ascertained taking into account the gross pay including all allowances payable along with the cost to the employer of all the benefits. The gross pay and allowances payable to an employee are indicated in the pay slip of an employee. The payroll department computes .....

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s earning of an employee is the employee cost to the entity. An illustration of summary of gross earnings of employees cost centre wise is indicated at Annexure II. Gross Employees costs generally exceed the cost of gross wages or salaries paid to employees. Employers are required to match the employee's contribution to PF, FPS, ESI, Workmen Compensation, paid holidays, leave, pension gratuity and the like. Employer's contribution to PF, FPS and ESI are identifiable with each employee. C .....

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worker's compensation under Workmen Compensation Act for injury to employees on the job, Accident Insurance policy is taken resulting in additional employee cost. It shall be treated as Production overhead as it is not specific to any cost centre. Non financial benefits are offered to employees in several ways. These are the benefits in the form of amenities or facilities which do not offer cash reward to the employee for any specific or measured work done. Such non monetary benefits make th .....

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ravel concession. ♦ Any other free or subsidised facility. ♦ Recreational facilities ♦ Protective clothing, liveries, uniforms etc. ♦ Tea milk etc They are non-financial only so far as the employee is concerned, but the employer has to incur expenditure to provide for the incentives. The above payments to employees are ascertainable at the end of each month. In case of subsidized benefits, token money recovered from the employee is credited to the relevant benefit scheme. .....

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ntre or cost object. Cost Object or Cost Centre is the logical sub-unit for collection of cost. Cost object may be any customer, product service, contract, project, activity or other work unit for which a separate cost measurement is desired. For example, if it is desired to determine what it costs to produce a car, then the cost object is car. If it is desired to determine the operating cost of maintenance department within a plant, the cost object is maintenance department. Different costs can .....

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ms: a. Fixed contribution to a fund by the employer with varying benefits to employees. b. Variable contribution to a fund by the employer to assure given benefit to the employees. The fixed contribution plans involves a defined cost per employee and can be readily assigned to cost centres or objects. The contribution under variable contribution plans are generally determined on an actuarial valuation The treatment of such benefits in Cost Accounts will be on the same basis as in financial accou .....

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s or employee cost. Employee Rate per Hour The measure of cost to keep an employee at work an hour or a day must include all of these elements where they exist. Hourly rates are to be calculated using the available hours as the denominator. Normal health breaks or rest allowances are excluded from available hours. In brief Employee cost includes remuneration paid or payable and provisions made for future payments. However the following payments to employees will not form part of employee cost: A .....

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art of employee cost in the current period and will be an item of reconciliation between cost and financial accounts. Employee cost does not include workers hired through contractor or agents as they are not on the roll of the entity and payments are made to the contractor and not to such workers. 5.2 Bonus whether payable as a Statutory Minimum or on a sharing of surplus shall be treated as part of employee cost. Ex gratia payable in lieu of or in addition to Bonus shall also be treated as part .....

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y incentive, merit incentive, service loyalty incentive, and the like. An incentive is a monetary inducement for better performance in addition to regular and overtime wages. It is an extra pay for extra performance. Scheme of incentives varies from entity to entity. However incentive payments made to employees form part of employee cost. Bonus under the Payment of Bonus Act must be distinguished from performance incentives which are generally related to output and not profits. These may take th .....

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form part of the employee cost if such payment was originally conceived as an incentive for higher production. Any payment of bonus either as a Statutory Minimum or on a sharing of surplus/incentive shall form part of the employee cost. The bonus paid to employees shall be identified with each cost centre/department. For determining labour hour rate, bonus shall be estimated on the basis of past results and future forecast. 5.3 Remuneration payable to Managerial Personnel including Executive Di .....

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perannuation and severance payment, and other benefits, besides commission, etc. Other benefits include free furnished residential accommodation or house rent allowance, leave travel concession, reimbursement of medical expenses for self and family, personal accident insurance, fully maintained company's car with driver, gardener, watchmen, electricity. Remuneration paid to managerial personnel will be identified as production, administrative or selling overhead on the basis of services prov .....

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benefitting from such costs. These benefits are amortized over the period benefitting from such additional cost resulting in reduction of current employee cost. Lump sum payment under the above scheme shall be amortized normally over 5 years and will form part of employee cost. The accounting for the unamortised is an issue, since there is no Costing Balance Sheet available for carrying forward the amount in the future periods. Memoranda account shall be maintained for the purpose. 5.5 Employee .....

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f the employee cost as there is no cash payment and it is being used for the purpose of decision making. 5.6 Cost of Idle time is ascertained by the idle hours multiplied by the hourly rate applicable to the idle employee or a group of employees. Idle time happens due to various causes for which an employee is not responsible but full payment may be required to be made. Idle time may arise due to: Time lost between gate and place of work, break for tea, personal needs, time interval between one .....

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of time due to breakdown of machinery, power failures, non-availability of material, lock out, atmosphere conditions, flood etc. It is abnormal idle time lost and is not part of the cost object. However, it shall be analysed cause wise as per Annexure III for corrective action, if any. Payment for such abnormal idle time is not included in costs and is charged to Costing Profit and Loss account. 5.7 Where Employee cost is accounted at standard cost, variances due to normal reasons related to Em .....

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ine the variances, if any, and analyse the causes of variances and take proper measure to control them. When standard costing system is in vogue, there can be employee cost variance, besides material cost and other variances relating to usage of resources during the course of production. Variance is the difference between an actual amount and a target or planned amount. Variances may be due to normal or abnormal reasons. Variances due to normal reasons shall be treated as cost while the variance .....

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tion study c. Taking trial runs. Employee rate standard The operations to be performed; the grades of employee required to perform the various operations and the rates of pay expected to be paid to the employee is taken into consideration for fixation of employee rate standards. In case of piece work system of payment, the setting of rate standard is simple because the piece rate fixed itself form the standard rate. In case of day work system, an hourly rate of pay is fixed for each grade of emp .....

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centives are provided for specific purpose. For example, generation of employment in specified areas, subsidy, grant or incentives are given by government to attract setting up units in those areas. Any subsidy, grant received/receivable relating to employee cost shall be reduced from the employee cost. 5.9 Any abnormal cost where it is material and quantifiable shall not form part of the Employee cost. Abnormal cost arises due to major breakdown of equipment for considerable period, non-availab .....

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ble. The materiality has not been defined in the standard. It will depend upon situation to situation. The rationale of exclusion is that inclusion of such items in the cost will make the cost not comparable with a normal situation. It shall not form part of cost of the production as not to distort the cost due to abnormal reasons. It is dealt with in the costing profit and loss account. 5.10 Penalties, damages paid to statutory authorities or other third parties shall not form part of the Emplo .....

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ar benefits provided to an employee shall be determined at the total cost of all resources consumed in providing such benefits. Free housing accommodation is provided to certain staff. Accommodation may be on lease or owned by the entity total expenses incurred for maintenance, repairs , depreciation, lease rent paid and any other related cost of housing is be assessed and form part of employee cost. The above treatment is also applicable for free conveyance provided which may be leased or owned .....

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ainst the relevant cost of the benefit. Net cost of benefits provided will form part of the employee cost. 5.13 Any change in the cost accounting principles applied for the determination of the cost should be made only if it is required by law or for compliance with the requirements of a cost accounting standard or a change would result in a more appropriate preparation or presentation of cost statements of an enterprise. Principles applied for determining the employee cost should be followed co .....

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an be made when required by any law as illustrated above or for compliance with cost accounting standards or it results in appropriate presentation of cost statement. CHAPTER 4 ASSIGNMENT OF COST 6.1 Where the Employee services are traceable to a cost object, such employees' cost shall be assigned to the cost object on the basis such as time consumed or number of employees engaged etc. or similar identifiable measure. Documents commonly used for assignment of employee cost are the "time .....

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s are prepared daily by employees for each job worked on. Employee job tickets indicate the number of hours worked, a description of the work performed, and the employee's wage rate (inserted by the payroll department). The sum of the employee cost and hours for different jobs (as shown on employee job tickets) should be equal to the total employee cost and employee hours for the period (as shown on time cards). Time booked as Job tickets when multiplied by employee hour rate indicate the co .....

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ference to the hourly rate of the particular workers who actually perform the work. Another method which is applicable where a worker runs several automatic machines is known as the Factor Hours Method. Each machine is known as a factor and the hours for which is referred to as factor hours. Under this method, a standard factor hour cost worked as under: Worker's wage rate ₹ 300 per day Working hours per day 8 Machine or factors handled 3 Factor hours per day (3 × 8) 24 Standard .....

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for employee cost, particularly direct employee cost, to be converted to hourly rates for ease of assignment to jobs or products. Such hourly rate may reflect only payroll costs i.e., only basic + dearness allowance + allowances or be comprehensive and include all benefits. The ultimate objective is to reflect the Cost to Company (CTC). Where the rate excludes some elements of employee cost, these will be treated as overheads and absorbed in cost. Where direct workmen are expected to carry out .....

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tion depends on nature, size of operation and the like. For example Employee Cost for generation of solar power is not significant in terms of product cost and forms part of overhead, but for subsidy requirement, it may be indicated separately. 6.3 Where the Employee costs are not directly traceable to the cost object, these may be assigned on suitable basis like estimates of time based on time study. Some employees work in such a manner that it is not possible to identify them with any cost cen .....

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are made on the basis of equipment hours after adjustments are made with such predetermined weights. Another example is of group benefits extended to employees such as Group Personal Accident Insurance, Group Medical Insurance Scheme etc. It is difficult to relate these costs to individual employees and therefore to cost centres or objects. These can only be allocated to cost centres or cost objects on the basis of no. of employees or employee cost of each cost centre or cost object. 6.4 The am .....

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accrue in future. It is therefore desirable that such payments shall be pro-rated over the years to be benefited by such payment, amortize the separation cost over a period, say five years, to cost objects on suitable basis, such as, direct employee hours or direct employee cost. However, unamortized separation cost shall not be amortized over the remaining period, if the relevant production operation has been discontinued. For example in a textile mill Dyeing activity has been discontinued aft .....

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up recruitment process search; (ii) Advertising (iii) Candidates evaluation (iv) Interviewing, including travel and substance (v) Placement agency cost (vi) Induction training /orientation programme etc. Cost incurred in regard to above activities is to be treated as overhead and assigned to the cost object on appropriate basis, such as number of employee recruited department wise. 6.6 Overtime premium shall be assigned directly to the cost object or treated as overheads depending on the econom .....

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reat the overtime premium as overheads and absorb the same as part of overheads. 6.7 Idle time cost shall be assigned direct to the cost object or treated as overheads depending on the economic feasibility and the specific circumstances causing such idle time. The Idle time is the difference between the time for which the employees are paid and the employees' time booked against the cost object. Idle time for reasons such as lunchtime, holidays, personal needs etc. are built in the cost per .....

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k on a product directly, either manually or by using machines. They are directly involved in the production of a finished product, that can be easily traced to the product Examples are assembly-line workers in an automobile factory or employee working on spindle / loom in textile industry. Direct Employee cost is to be presented as a separate item in the cost statement. 7.2 Indirect employee costs shall be presented in cost statements as a part of overheads relating to respective functions e.g. .....

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d part of Production overheads. Salaries of employees working on administrative activities such as administration, personnel, accounts, and the like are classified as part of administrative overheads. Similarly, salaries of employees engaged in marketing / selling activities and distribution activities are part of Selling and Distribution Overheads. 7.3 The cost statement shall furnish the resources consumed on account of Employee cost, category wise such as wages salaries to permanent, temporar .....

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o capital works or jobs in the nature of deferred revenue expenditure indicating the method followed in determining the cost of such capital work. The concept of deferred revenue expenditure will be obsolete as per new accounting standard. 2. Separation costs payable to employees. 3. Any abnormal cost excluded from employee cost. 4. Penalties and damages paid etc excluded from Employee cost. 5. Any Subsidy, Grant, Incentive and any such payment reduced from Employee cost. 6. The Employee cost pa .....

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ing the current year, modernization of assembly line was carried out departmentally amounting to ₹ 50 lakhs, out of which ₹ 2 lakhs is for employee cost. Separation costs paid / payable during the period is to be disclosed indicating the basis adopted for charging off the cost. As detailed under paragraph 6.4, amortized separation cost is to be treated as indirect cost and will form part of the overhead cost. A disclosure shall be made about the amount amortised during the period and .....

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mp; Loss account is ₹ 15 lakhs. Abnormal cost has been dealt with in paragraph. If there is abnormal cost relating to employee during period of cost statement, the same is to be disclosed. For example: Due to major breakdown in the plant, abnormal idle employee cost of ₹ 4 lakhs has been excluded from the cost of production. Disclosure of Penalties and damages paid etc excluded from employee cost is to be disclosed in the cost statement. For example: Penalty of ₹ 50,000/- has b .....

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various Acts viz. Companies Act, 1956, Central Excise Act 1944, Income Tax Act 1961. If any employee cost is paid to related parties, its relationship, nature of transaction viz. amount and other terms / conditions relating to employee cost are to be disclosed. The objective of disclosure is to ascertain that the transaction is at arm's length and on purely commercial terms. For example: A is holding company of B Company. Employees of B Company attended training programme conducted by A Com .....

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yee Cost. Where the effect of such change is not ascertainable wholly or partly the fact shall be indicated. The cost accounting principles and methods applied for the measurement and assignment of employee cost is to be followed consistently from one period to subsequent period and applied uniformly for different products and divisions. If there is any change in the cost accounting principles and methods during the period resulting in material effect on the cost, the same shall be disclosed ind .....

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s that disclosure shall be made only where it is material significant and quantifiable. The materiality and significance of a piece of information depends on nature, size and complexity of operation. An item of employee cost of a product may have significance considering the nature of the product. For example, an employee working on critical operation at special machine is to be indicated in the cost statement as per contract agreement, it is to be disclosed to ensure compliance with the terms o .....

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of the cost statement or as a foot note. If there are many items of disclosures, the same may be in schedule of Notes to the cost statement. Example of Employee cost resource wise Rs / Lakhs Direct employee cost (Time basis) 125 Piece Rate Wages 12 Annexure I Illustration of Pay Slip Personnel Attendance Monthly rate Earning Deductions Department Code Total working days Basic Basic Provident Fund Employee Number No. of days present Dearness allowance Dearness allowance E.S.I. Employee Name Week .....

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earning Gross earning Date of joining Pay days Annexure II XYZ COMPANY STATEMENT SHOWING EMPLOYEE EARNINGS PERIOD FROM 01/04/2009 TO 30/04/2009 DEP- TT. HA- ND BASIC DA PL BA- SIC PL DA S.S. ALL- OW CONV HRA SP L. ALL WASH. ALL. OTH- ER CASH CMP. INC- EN- TIVE GWR SHI- FT- ALL DUT Y_ ALL. MED ALL. SPL_ PAY SPL_ HRA R. OFF GROSS EAR- NING 2101 12 63600 38600 0 0 3500 10300 9500 0 500 0 3500 7400 9300 1400 0 1550 0 0 24 149174 2111 15 66000 41000 0 0 3800 11000 10000 0 520 0 7100 7600 15000 1800 0 .....

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74 GROSS EARNING O F THE EMPLOYEEs COST CENTER WISE ARE IN THE ABOVE STA TEMENT. SIMILAR STATEMENT OF DEDUCTIONS FROM EMPLOYEE COST CENTRE WISE IS ALSO PREPARED. Annexure III Analysis of Idle time Department Idle time due to Total Productive Maintenance No material Transport DLH DLH % DLH % DLH % DLH % A 1000 800 80 150 15 50 5 B 1900 1710 90 85 4.5 105 5.5 C 850 765 90 45 5 40 4.7 D 300 255 85 15 5 15 5 15 5 DLH = Direct labour hour Maintenance = waiting for maintenance No Material = waiting fo .....

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andard hrs × standard rate) = (2800 × 28) - (2000 × 40) ₹ 1600 Favourable Employee Rate Variance: Actual hours (Standard rate - Actual rate) 2800 × (40 - 28) ₹ 33600 Favourable Employee Efficiency Variance Standard rate × (Standard hours - Actual hours) 40 × (2000 - 2800) ₹ 32000 Adverse Total employee Variance: (Employee Rate variance - Efficiency Variance) (Rs. 33600 Favourable - ₹ 32000 Adverse ) ₹ 1600 Favourable Employee Mix .....

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162 per hr Hours worked 48 hrs Standard employee cost 48 × ₹ 145 = ₹ 6960 Hours worked 48 hrs Actual employee cost 48 × ₹ 162 = ₹ 7776 Mix variance = Standard mix cost - actual mix cost ₹ 6960 - ₹ 7776 = ₹ 816 Adverse Variance Employee (wage) rate variance: This is the portion of the wage variance which is due to the difference between the actual wage rate paid and the standard rate of pay specified. Reasons for wage rate variances are: (a) C .....

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down in the standard. Wage rate variance are uncontrollable except for the portion which arises due to deployment of wrong grade of employee or overtime work and such other controllable factors for which the departmental executive may be held responsible. Employee Efficiency variance: It is the portion of the direct wages variances which is due to the difference between the standard employee hours specified and the actual employee hours expended. The employee efficiency variance is the result of .....

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rd material requiring more or less operation time. Variances are to be analyzed. Normal variances will form part of the employee cost and abnormal variance will not form part of the employee cost. For example: Abnormal employee cost variance may be due to slow down tactics or waiting for material or breakdown of machinery. Annexure V CAS - 7 COST ACCOUNTING STANDARD ON EMPLOYEE COST The following is the COST ACCOUNTING STANDARD 7 (CAS - 7) issued by the Council of The Institute of Cost and Works .....

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or service, and 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 Employee cost with reasonable accuracy. 3 Scope This standard should be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of Employee cost including those requiring attestation. 4 Definitions The following terms are being used in this standa .....

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r general management of an organization2. 4.4 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 costs are finally ascertained.3 4.5 Distribution Overheads: Distribution overheads, also known as Distribution Cost, are the costs incurred in handling a product from the time it is ready for despatch until it reaches the ultimate consumer.4 The cost of any non manufacturing ope .....

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ages, salary, contractual payments and benefits, as applicable or any payment made on behalf of employee. This is also known as Labour Cost.6 Explanation: 1. Contract employees include employees directly engaged by the employer on contract basis but does not include employees of any contractor engaged in the organisation. 2. Compensation paid to employees for the past period on account of any dispute/court orders shall not form part of Employee Cost. 3. Short provisions of prior period made up i .....

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#9632; Other future benefits ♦ Benefits generally include ■ Paid holidays. ■ Leave with pay. ■ Statutory provisions for insurance against accident or health scheme. ■ Statutory provisions for workman's compensation. ■ Medical benefits to the Employees and dependents. ■ Free or subsidised food. ■ Free or subsidised housing. ■ Free or subsidised education to children. ■ Free or subsidised canteen, crèches and recreational facil .....

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ving cash outlay, computed for any purpose.7 4.10 Indirect Employee Cost: The cost which cannot be directly attributed to a particular cost object.8 4.11 Marketing overheads: Marketing Overheads are also known as Selling and Distribution Overheads. 4.12 Overtime Premium: Overtime is the time spent beyond the normal working hours which is usually paid at a higher rate than the normal time rate. The extra amount beyond the normal wages and salaries paid is called overtime premium. 4.13 Production .....

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ost object computed with reference to set of technical specifications and efficient operating conditions. Standard costs are used as scale of reference 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. Standard costs are also used for estimation. 5 Principles of Measurement 5.1 Employee Cost shall be ascertained taking into account the gross pay including all allowances p .....

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reference whether the whole or part of the remuneration is computed as a percentage of profits. Explanation: Remuneration paid to non executive directors shall not form part of Employee Cost but shall form part of Administrative Overheads. 5.4 Separation costs related to voluntary retirement, retrenchment, termination etc. shall be amortised over the period benefitting from such costs. 5.5 Employee cost shall not include imputed costs. 5.6 Cost of Idle time is ascertained by the idle hours mult .....

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h amounts are related. 5.9 Any abnormal cost where it is material and quantifiable shall not form part of the Employee cost. 5.10 Penalties, damages paid to statutory authorities or other third parties shall not form part of the Employee cost. 5.11 The cost of free housing, free conveyance and any other similar benefits provided to an employee shall be determined at the total cost of all resources consumed in providing such benefits. 5.12 Any recovery from the employee towards any benefit provid .....

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l be assigned to the cost object on the basis such as time consumed or number of employees engaged etc or similar identifiable measure. 6.2 While determining whether a particular Employee cost is chargeable to a separate cost object, the principle of materiality shall be adhered to. 6.3 Where the Employee costs are not directly traceable to the cost object, these may be assigned on suitable basis like estimates of time based on time study. 6.4 The amortised separation costs related to voluntary .....

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y and the specific circumstance requiring such overtime. 6.7 Idle time cost shall be assigned direct to the cost object or treated as overheads depending on the economic feasibility and the specific circumstances causing such idle time. Cost of idle time for reasons anticipated like normal lunchtime, holidays etc is normally loaded in the Employee cost while arriving at the cost per hour of an Employee/a group of Employees whose time is attributed direct to cost objects. 7 Presentation 7.1 Direc .....

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