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GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON PACKING MATERIAL COST (CAS-9)

CAS - 09 - G Note - Rule - Companies Law - CAS - 09 - G Note - The Council of the Institute of Cost Accountants of India has issued the Cost Accounting Standard on Packing Material Cost (CAS - 9) which lays down a set of principles and methods of classification, measurement and assignment of packing material cost for determination of the cost of product and the presentation and disclosure in the cost statement. The Guidance Note deals with principles and methods as provided in the CAS-9 and prac .....

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maintain cost accounting records in accordance with the generally accepted cost accounting principles and cost accounting standards issued by the Institute, to the extent these are found to be relevant and applicable. The above Rules further provides that these will be applicable to companies wherein aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or wherein the aggregate value of the turnover made by the company from sa .....

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with the Cost Accounting Standards issued by the Institute to the extent these are found to be relevant and applicable. The Cost Accounting Standards have been set in bold italic type. Numbering of standard has been retained as in CAS-9 for facility of reference. CHAPTER 1 INTRODUCTION Packaging is enclosing or protecting products for distribution, storage, sale, and use. Material used for packaging is termed as Packing Material. Packing material is required for containment, protection, handling .....

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agglomeration- Small objects are typically grouped together in one package for reasons of efficiency. For example, a single box of 1000 pencils requires less physical handling than 1000 single pencils. Liquids, powders, and granular materials need containment. ♦ Information transmission- Packages and labels communicate how to use, transport, recycle or dispose of the package or product. With pharmaceuticals, food, medical and chemical products, some types of information are required by reg .....

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pening, reclosing, use, dispensing and reuse. ♦ Portion control - Single serving or single dosage packaging has a precise amount of contents to control usage. Bulk commodities (such as salt) can be divided into packages that are more suitable for individual households. It also aids the control of inventory, selling sealed one-litre-bottles of milk, rather than people bringing their own bottles. Type of packing material required depends on the type of product to be packed. Packing materials .....

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bags, Glass, plastic bottles, closures (metal/plastic rubber) and the like. On the basis of source of supply, packing materials are classified as indigenous materials/imported materials. Indigenous packing materials are manufactured within the country and imported packing materials are purchased from other countries. For the purpose of this standard Packing Materials are classified into primary and secondary packing materials. Primary Packing Material are for holding the product, keeping the con .....

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isplay. But the function of primary packing material is essentially for holding a product. Depending upon use, the same material may be classified as secondary packing material. For example, a shrink wrap can be primary packaging when applied directly to the product, and secondary packaging when combining smaller packages. Primary packing material cost is part of production cost of a cost object. In case two types of primary packing materials are used viz. plain and fancy, the difference in the .....

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wrapping and containers that are used to collate the groups into larger loads for transport, which facilitates loading and unloading of goods. Some products such as sugar, fertilizers, cements, and the like are sold in bags and do not need any further packing. Such packing is to be treated as primary packing and will form part of cost of production. CHAPTER 2 DEFINITIONS 4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular and unexpected and/or due to some abnorm .....

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ct Expenses: Expenses relating to manufacture of a product or rendering a service, which can be identified or linked with the cost object other than direct material or direct employee cost. 4.6 Direct Materials: Materials the costs of which can be attributed to a cost object. 4.7 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. 4.8 Finance Co .....

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s that do not meet quality standards. This may include reworks or rejects. 4.11.1.1 Reworks: Defectives which can be brought up to the standards by putting in additional resources. 4.11.1.2 Rejects: Defectives which cannot meet the quality standards even after putting in additional resources. 4.11.2 Packing Material Cost: The cost of material of any nature used for the purpose of packing of a product. 4.11.3 Primary Packing Material: Packing material which is essential to hold the product and br .....

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make the product marketable. 4.12 Packing Material Development Cost: Cost of evaluation of packing material such as pilot test, field test, consumer research, feedback, and final evaluation cost. 4.13 Production overheads: Indirect costs involved in the production process or in rendering service. 4.14 Selling Overheads: Selling Overheads, also known as Selling Costs, are the expenses related to sale of products and include all Indirect Expenses in sales management for the organization. 4.15 Stan .....

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efundable or to be credited) that can be quantified at the time of acquisition. The valuation of receipt of packing materials is to be based on the terms and conditions stated in the purchase /supply order. It indicates the source of supply i.e. indigenous or imported and the like. Purchase of indigenous Packing material: The purchase/supply order inter alia states: (1) Specification of packing material being purchased (2) Purchase price (3) Quantity of supply (4) Time of supply (5) Place of sup .....

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eated as material handling cost, an item of overhead. Trade/cash discount, rebates, taxes and duties refundable (or to be credited by the taxing authorities) are to be set off. 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. Imported Packing Material: Packing Materials are imported from other countries depending upon the availability in the coun .....

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erial, bill of entry is prepared and other custom formalities are complied with for clearance of the goods. Following points are to be considered while valuing imported packing material: a. Actual customs duty paid on the basis of classification by the customs authorities will be assigned, net of any credits. Higher duty paid under protest will not be included in cost if there is reasonable expectation that the entity will satisfy the conditions for the excess duty to be refunded. b. Packing Mat .....

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mported parity rate of material. c. Harbour dues, stevedoring charges, congestion charges, and the like on the basis of actual, if imported singly. If the packing material is imported as part of a basket, then a suitable basis such as proportionate weight, volume or value will become the basis for assigning the above charges d. If Intermediate storage is called by the nature of transport, the actual charges by the storage provider will be included in the cost. For example transporting the materi .....

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ed from the cost of material h. Bank Charges are in the nature of borrowing cost or in the nature of administrative overheads will not form part of packing material cost. Cost incurred for acquisition, inspection, storage, movement of materials and insurance is also to be assigned to packing material cost on rational basis. Handling costs up to works/factory gate If handling cost is specific and handled singly, it is to be assigned to the packing material handled. If employees are used for handl .....

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overheads and not included in Packing Material Cost. If the inspection is part of the vendor's responsibility, no separate inspection cost will be assigned. Other cost incurred for packing material acquisition is insuring of packing material. If insurance premium is specific and insured singly, it is to be assigned to the specific packing material insured. In case it is part of a comprehensive policy then the assignment of the insurance premium will be on the basis of the proportionate value .....

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part of administrative overheads. Such charges are not finance charges except where they are in the nature of borrowing costs. Sometimes goods are kept in bonded warehouse and clearance of goods is delayed. This may happen due to any financial stringency delaying the payment to the bank. Such payments of storage are to be excluded from packing material cost and are dealt with in the financial accounts. 5.1.3 Self manufactured packing materials shall be valued including direct material cost, dir .....

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ost, direct employee cost, direct expenses, share of factory overhead and share of administrative overheads relating to production. In case any packing material development cost such as pilot test, field test consumer research, feedback and final evaluation cost is incurred, it will form part of the cost of self manufactured packing material. Direct Material is the cost of material which can be attributed to a cost object. It is consumed for production of a product or service which is identifiab .....

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ing of packing material are to be identified. Remuneration paid to them and share of other employee related cost are to be determined as per Standard CAS-7 on Employee cost. Direct Expenses specifically identifiable with the production of packing material (for example job charges, hire charges for use of specific equipment, cost of special designing of packing material or drawings etc.) shall form part of the cost of self manufactured packing material. Factory overheads comprise of indirect mate .....

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unting Standard on Cost of Production for Captive Consumption (CAS-4) deals with the determination of cost production for captive consumption. While valuing the cost for captive consumption of packing material, the following elements of costs are to be considered: I. Material consumed (indigenous, imported, bought out items, self manufactured items, process material etc.) II. Direct employee cost (as per CAS-7) III. Direct expenses (for example cost of utilities, royalty, technical know-how char .....

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spoiled. Treatment of loss will depend upon the terms and conditions of purchase order. If the purchase order does not specify any level of loss, and supplier is responsible to supply good quantity, the loss is to be recovered from suppliers or insurers as the case may be. The normal loss is to be absorbed by the good units. Abnormal loss of packing material is taken to reconciliation and does not form part of the packing material cost. 5.1.6 The forex component of imported packing material cos .....

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g material cost is taken to a separate financial account as exchange rate variations not being part of the packing material cost. Foreign Exchange difference shall be a reconciliation item. 5.1.7 Any demurrage, detention charges or penalty levied by the transport agency or any authority shall not form part of the cost of packing materials. Demurrage and penalties are levied by the transport agency or any other authority such as custom authorities for delay in clearance of wagon/vessel and the li .....

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ial shall be reduced for ascertainment of the cost to which such amounts are related. Subsidy and grant received should be recognized on a systematic basis. These should be matched with the related cost for which these are intended to compensate. Subsidy received for any packing material is to be reduced from the packing material cost. Subsidy receivable for using specific packing materials produced on account of environmental reasons shall be adjusted against the packing material cost. 5.2. Pri .....

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he FIFO formula assumes a cost flow that the items of packing materials that were purchased or produced first are issued first while LIFO assumes the exactly opposite cost flow charging the current price to cost. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or a .....

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s current price cost. Any accepted method of pricing of issue may be used. However, whatever method of pricing is adopted under CAS 6, the same should be specified and followed consistently. 5.3 Wherever, packing material costs 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. Inward freight shall form the part of the packing materials cost. In case inward fr .....

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on of cost shall be as per CAS 4. Imputed cost does not involve any cash outlay and is relevant for decision making purpose viz whether to use reusable packing material or not. This will not form part of the packing material cost. But if any excisable goods produced is used for captive consumption, its cost is to be determined as per CAS-4. Under CAS-4 in case packing material is supplied free of cost by the user of the captive product the landed cost of such material shall be included in the co .....

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. It provides management with a medium by which the effectiveness of current results is measured and responsibility for variance is placed. Standard costs are used to compare the actual costs with the standard cost with a view to determine the variances, if any, analyse the causes of variances and take proper measure to control them. Standard Cost method can also be applied for valuation of receipt and issue of packing material. In this method price of issues is predetermined for a stated period .....

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tandard costing system is in vogue, there can be other variances relating to usage during the course of packing the cost object which may be due to normal or abnormal reasons. Variances due to normal reasons shall be treated as cost while the variances due to abnormal reasons are treated outside the cost of production. 5.6 The normal loss arising from the issue or consumption of packing materials shall be included in the packing materials cost. Certain losses are inherent in the use of packing m .....

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-down in plant, theft, fire, material not according to required specification and the like. They are not considered in the cost of production and charged to profit & loss account. In case of packing material which is rejected after issue due to abnormal causes such as misprinting, material of wrong specification, size and the like is to be treated as abnormal cost. It is to be excluded from cost of packing material cost of the product. Any realization from disposal of such rejected packing m .....

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ealt with in the reconciliation with financial accounts. 5.8 The credits/recoveries in the nature of normal scrap arising from packing materials if any, should be deducted from the total cost of packing materials to arrive at the net cost of packing materials. Normal Loss occurs in use of different packing material such as in cutting wood and cardboard to make box and crate. Adjustment shall be made to the cost of packing material for credits/recoveries from sale of such scrap. CHAPTER 4 ASSIGNM .....

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osts are ascertained. It is the logical sub-unit for collection of cost. Material requisition is the source document indicating details of packing material issued for a product. It records the job number, quantity, type of packing material, and items listed are priced at their acquisition cost. Thus material requisition represents the source of information for assigning the cost of packing material to cost object. Based on actual issues, the cost of packing material is traced to cost object to t .....

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and the standard as accumulated over the period is charged off to consumption. In many situations packing materials cannot be issued for the exact quantity required for packing the products produced. This may happen because the material is bulky e.g. wood used for making crates and they cannot be cut to the exact size in the stores. It may also happen that packing materials of small value like nails, glue etc. are issued in bulk as it is cumbersome to issue them for the exact quantity. In such .....

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department at periodic intervals. Quantity of packing material consumed so arrived at can be valued either at standard rate or actual rate depending on the cost system in vogue in the Company. The norms regarding the quantity of packing materials required for each product is stored either as part of the standard bill of materials relating to the product or in a separate bill of packing materials. Packing material cost may also be assigned on the basis of standard bill of packing material in pla .....

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t object, concept of "to the extent economic feasible" is also to be taken into account. This requires an exercise to analyse the cost involved, benefit to accrue and over-riding requirement to identify packing material with the object. 6.2 Where the packing material costs are not directly traceable to the cost object, these may be assigned on the basis of quantity consumed or similar measures like technical estimates. Packing Material Costs which are not directly traceable to cost obj .....

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l consumption of such packing material per month and divide the cost between costs objects packed based on a technical estimate or on a sample survey of usage during a selected period. Such studies may be reviewed periodically to correct for changes taking place affecting the consumption. 6.3 The packing material cost of reusable packing shall be assigned to the cost object taking into account the number of times or the period over which it is expected to be reused. Certain packing materials are .....

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ed. If charged value for container is ₹ 75 and return credit is ₹ 40, ₹ 35 will be treated as recovery towards packing material cost. The Charge of ₹ 35 per returnable container is to be determined considering the number of times/period over which it is expected to be reused and the total recovery targeted over the entire period. Another example is gas cylinder. These are returnable. Filled cylinders are supplied against a security deposit and user is charged rent. Cylind .....

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roduction. Primary packing material has been defined under paragraph 4.11 of the CAS-9. These materials are essential to hold the product and bring it to a condition in which it can be used by or sold to a customer. Primary packing materials are of various types and their use varies with industry to industry. For example: - Pharmaceutical industry: Insertions related to product, Foils for strips of tablets/capsules, vials. - Industrial gases: Cylinders/bottles used for filling the gaseous produc .....

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. cartons containing packs of biscuits III. card board boxes for holding packed cloth IV. Strips are primary packing material and will form cost of production and whereas carton and card board boxes used for strips of tablets shall form part of the distribution overheads as these are used for storing transporting. Similarly cartons for pack of biscuits, card boxes for packed cloth will form part of secondary packing material. (b) fancy packing material to attract customers; (c) Product literatur .....

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as purchased - indigenous, imported and self manufactured. This paragraph specifies categories under which Packing Material Cost is to be exhibited in the Cost statement viz. by type of packing material - Primary packing material and Secondary packing material. It further specifies classification of packing material cost on the basis of source of supply viz. indigenous, imported and self manufactured. These items are to be exhibited separately as illustrated in Annexure III. 7.2 Where separate .....

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it 1 Packing material Cost 1.A Primary Packing Cost (i) Primary packing material Wrapper Boxes (ii) Others 500 1.00 500 (Such as gum, tape, string etc.)......... 50 5.00 250 1.B Secondary Packing cost Secondary Packing Material Card Box 5 20 100 Others It is advisable to provide previous year's figures against cost per unit. Type of packing used, i.e. strips, bottle, container, Bags, bale, Box, carton and the like is to be indicated. CHAPTER 6 DISCLOSURES 8.1 The cost statements shall disclo .....

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he price and usage variances. In case issue of packing material is valued at standard cost, the cost statement shall disclose the standard cost and variance thereof. 8.1.3 The cost and price of Packing Materials received from /supplied to related parties. If any packing material is procured from or supplied to related parties, (as defined under the Companies Act 1956) name & address of the party, name of the packing material, nature of transaction, quantity, transfer price, amount, normal pr .....

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ve price is based on competitive quotes. 8.1.4 Packing Materials cost incurred in foreign exchange. Payment made in foreign exchange for importing packing material shall be indicated in the cost statement. 8.1.5 Any Subsidy/Grant/Incentive and any such payment reduced from Packing Materials Costs. Any subsidy/grant/incentive received relating to packing material is to be reduced from the cost of packing material and disclosure made accordingly by way of a foot note. The State Government has been .....

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xcluded from the cost of packing material as the same has not contributed to the packing cost of the cost object. Disclosure is to be made. For example: During the year there was fire resulting in loss of packing material valued at ₹ 2.5 lakhs. The same has been excluded from the cost of packing material. 8.1.8 Penalties and damages paid etc. excluded from Packing Materials Costs. Penalties and damages paid are not an item of cost as these are levied for non compliance with regulatory/cont .....

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ement and assignment of cost of packing material are to be applied consistently between one period to subsequent period and uniformly applied for different packing material. If any change is made in these principles and methods which results in material effect on the cost of packing material, the same shall be disclosed in the cost statement or by a foot note. In case the impact of change in principles and methods of cost accounting is not scertainable, the fact is to be disclosed by a foot note .....

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likely that it is material ♦ The amount of cost of a cost object compared to the amount of packing material cost under consideration - the greater the proportion of the considered amount of packing material cost versus the cost of object, the more likely it is material. ♦ The relationship of repairs and maintenance cost with cost object. ♦ The cumulative impact of individually immaterial items - do they offset one another or do they accumulate in one direction (increase or decr .....

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e or silver coloured wood, softwood can be used instead of hardwood, which is heavier, Cardboard/corrugated boxes These are usually made out of corrugated fiberboard. If more protection is needed, double-walled boxes can be used. Cardboard/corrugated boxes are cheaper to manufacture and easier to handle than the traditional wooden crates. Different types of material used for packaging: Aerosols, Bottles. Cans, Foils, Lids, Bottle Caps, Closures Packaging Bags, Packaging Boxes, Packing & Seal .....

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es, Cans, Bottles, Jars & Containers, Box, Case, Tray and Carton, Box boards, Linerboards, Corrugated & Bleached Boards. Plastic Plastic is the most frequently used type of packaging material because of its low cost and light weight. It can be manufactured in a variety of sizes and shapes, allowing users to make convenient packages for the user of a particular item. Plastic films-Wrapping with stretch film. These wraps are water proof, moisture proof, dust proof and transparent. Wrapping .....

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e additional protection, the bubble wrap can simply be overlapped to provide several layers of cushioning. Tissue Paper Tissue paper is used inside a container to fill empty space so that the packed items do not shift in transit. Fragile contents like glass or porcelain are often wrapped in tissue paper before being placed inside another type of protective container for shipping. Poly Bags, Tubes & Sheets Poly Wrappers in custom Sizes & Thickness plastic wrappers, films and sheet PVC- Po .....

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s, Glue, Barcodes, Stickers & Lable Sealants Adhesive, Non-Adhesive & Pressure Sensitive Vacuum, Skin, Blister & Thermoform Packaging Banding & Bundling Material Sticker Labelling, Marking Insertions Packing material may be classified as primary packing material or secondary packing material depending upon its use. But certain packing materials having a characteristics of primary packing material are classified as raw material based on industry practice .For example Primary enclo .....

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r packaging, namkeen packaging, pastry packaging, toffee wrappers, lollipop wrappers, chewing gum wrappers, chocolate wrappers and many more. Beverage Packaging Beer, drinks, water bottle, juice, soft drinks bottles/can Personal care cosmetic Packaging Cosmetic, oral care, Toiletries, soap, shampoo, glass like clear polymer bottle/tubes/pouch etc. Pharmaceutical Blister, Aluminium/cellophane/glassine paper foil for strip or blister packing of tablets/capsules, bottle (glass/plastic), closures, ( .....

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e paper, lining paper, iron/plastic hooks, nails, sewing thread etc. ANNEXURE III Illustration of Presentation of Packing Material Item Quantity (Unit) Rate/Unit Amount Cost Per unit Material Cost Employee cost Primary packing Cost (a) Primary packing material • imported • indigenous (b) Other expenses • Production Overhead Production cost (after adjustment of WIP) Secondary Packing Cost: Cartoons (indigenous) Card Boxes (imported) Selling Expenses ANNEXURE IV (CAS 9) COST ACCOUNT .....

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cking Material Cost. 1.2 This standard deals with the principles and methods of classification, measurement and assignment of Packing Material Cost, for determination of the cost of product, and the presentation and disclosure in cost statements. 1.3 Packing Materials for the purpose of this standard are classified into primary and secondary packing materials. 2. Objective The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the packi .....

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n or operation.1 For example: the cost of packing material which is rejected after issue due to abnormal causes such as misprinting, use of material of wrong specification etc. (net of realisable value) may be treated as abnormal cost. 4.2 Administrative Overheads: Cost of all activities relating to general management and administration of an organisation. Administrative overheads shall exclude any overhead relating to production, operations and marketing. 4.3 Cost Object: This includes a produc .....

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rect Expenses are royalties charged on production, job charges, hire charges for use of specific equipment for a specific job, cost of special designs or drawings for a job, software services specifically required for a job, travelling Expenses for a specific job. 4.6 Direct Materials: Materials the costs of which can be attributed to a cost object.5 4.7 Distribution Overheads: Distribution overheads, also known as Distribution Cost, are the costs incurred in handling a product from the time it .....

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short term and long term borrowings, amortisation of discounts or premium related to borrowings, amortisation of ancillary cost incurred in connection with the arrangements of borrowings, finance charges in respect of finance leases, other similar arrangements and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest costs7. The terms Finance costs and Borrowing costs are used interchangeably. 4.9 Imputed Costs: Hypothetic .....

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de reworks or rejects.9 4.11.1.1 Reworks: Defectives which can be brought up to the standards by putting in additional resources.10 Rework includes repairs, reconditioning and refurbishing. 4.11.1.2 Rejects: Defectives which cannot meet the quality standards even after putting in additional resources.11 Rejects may be disposed off as waste or sold for salvage value or recycled in the production process. 4.11.2 Packing Material Cost: The cost of material of any nature used for the purpose of pack .....

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that are used more than once to pack the product. 4.11.5 Scrap: Discarded packing material having some value in a few cases and which is usually either disposed of without further treatment or reintroduced into the production of packing material.12 4.11.6 Secondary Packing Material: Packing material that enables to store, transport, inform the customer, promote and otherwise make the product marketable. For example: ♦ Pharmaceutical industry: Cartons used for holding strips of tablets and .....

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service .13 The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denote the same meaning and are used interchangeably. Production overheads shall include administration cost relating to production, factory, works or manufacturing. 4.14 Selling Overheads: Selling Overheads, also known as Selling Costs, are the expenses related to sale of products and include all Indirect Expenses in sales management for the organization.14 4.15 Standard Cost: A predeterm .....

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: 5.1.1 The packing material receipts should be valued at purchase price including duties and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited) that can be quantified 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 re .....

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existing process or product. 5.1.4 The valuation of captive consumption of packing materials shall be in accordance with paragraph 5 of Cost Accounting Standard 4. 5.1.5 Normal loss or spoilage of packing material prior to receipt in the factory shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers, insurers, carriers or recoveries from disposal. 5.1.6 The forex component of imported packing material cost shall be converted at the rate on the date of the tr .....

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t received/receivable with respect to packing material shall be reduced for ascertainment of the cost to which such amounts are related. 5.2. Principle of valuation of issue of packing material Issues shall be valued using appropriate assumptions on cost flow. For example: First In First Out, Last In First Out, Weighted Average Rate. The method of valuation shall be followed on a consistent basis. 5.3 Wherever, packing material costs include transportation costs, determination of costs of transp .....

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ances due to normal reasons shall be treated as part of packing material cost. Usage variances due to abnormal reasons shall be treated as part of abnormal cost. 5.6 The normal loss arising from the issue or consumption of packing materials shall be included in the packing materials cost. 5.7 Any abnormal cost where it is material and quantifiable shall be excluded from the packing material cost. 5.8 The credits/recoveries in the nature of normal scrap arising from packing materials if any, shou .....

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al cost of reusable packing shall be assigned to the cost object taking into account the number of times or the period over which it is expected to be reused. 6.4 Cost of primary packing materials shall form part of the cost of production. 6.5 Cost of secondary packing materials shall form part of distribution overheads. 7. Presentation 7.1 Packing Materials shall be classified as primary and secondary and within this classification as purchased -indigenous, imported and self manufactured. 7.2 W .....

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