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TMI BlogGUIDANCE NOTE ON COST ACCOUNTING STANDARD ON COST OF PRODUCTION FOR CAPTIVE CONSUMPTION (CAS-4) - (Revised)X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Standards have been set in bold italic type and reference number has been retained as in CAS-4 for ready reference. CAS 4 refers to Central Excise Act and Rules framed there under for determination of assessable value of goods used for captive consumption. Therefore, this Guidance note refers to relevant sections of Central Excise Act, 1944 , Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 , other relevant rules thereto, case laws on the subject and provides methodology for determination of assessable value of captively consumed goods on cost construction method as a measure of simplification. Circular No. 692/08/2003-CX dated 13th February, 2003 issued by Department of Revenue (CBEC) inter alia provides that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. The Board has interacted with the Institute of Cost Works Accountants of India (ICWAI) for developing costing standards for costing of captively consumed goods. Paragraph 3 of the above circular further provides: cost of production of captively consumed goods will henceforth be done strictly in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. If any one of the above requirements is not satisfied, assessable value shall be determined under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 notified on 30.6.2000, as provided under Section 4(1)(b) of the Act. For ready reference extract of Section 4 of the Central Excise Act, 1944 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are annexed as Annexure II and III. Rules 8 and 9 deal with the valuation of goods captively consumed. Meaning of Captive Consumption: Captive Consumption means that the goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles in the same premises or elsewhere. When goods manufactured are supplied to a related party who does not sell the goods but consumes the same in manufacture of another product(s), such goods are also deemed to be captively consumed for the purpose of valuation under Excise Laws. In some cases during the manufacture, certain intermediate goods emerge and are used in manufacture/production of other goods. The use of such intermediate product wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2001 Commissioner of Central Excise, Pune v. M/s Cadbury India Ltd . (Refer Annexure IV), Hon'ble Supreme Court of India, observed: the Institute of Cost and Works Accountants of India (ICWAI) has laid down the principles of determining cost of production for captive consumption and formulated the standards for costing: CAS-4. According to CAS-4 the definition of cost of production is as under: 4.1 Cost of Production: Cost of Production shall consist of Material consumed, Direct wages and salaries, Direct expenses, Works overheads, Quality Control cost, Research and Development cost, Packing cost, Administrative Overheads relating to production. The cost accounting principles laid down by ICWAI have been recognized by the Central Board of Excise and Customs vide Circular No. 692/8/2003 CX dated 13.2.2003 . The circular requires the department to determine the cost of production of captively consumed goods strictly in accordance with CAS-4. The Tribunal in the case of BMF BELTINGS LTD. v. CCE : 2005 (184) E.L.T. 158 (Tri. Bang.) for the period 1995 to 2000 has directed the department to apply CAS-4 for the determination of the cost of production of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted person is dealer/distributor of the assessee and secondly the related person buys goods from the assessee for consumption in the production or manufacture of articles. In case, the related person does not sell the goods but uses or consumes such goods in the production or manufacture of the articles, the value shall be determined in the manner specified in rule 8, i.e. assessable value to be 110% of cost of production as per proviso to Rule 9 . Rule 10(a) of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 , also provides that where excisable goods are sold to the related party/inter connected undertaking who does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value of goods shall be determined in the manner specified in Rule 8 . The details of persons who shall be deemed to be related are prescribed under Section 4(3) (Refer Annexure II). Valuation of capital goods manufactured and captively consumed: Capital goods manufactured in a factory and used within the factory of manufacturer for manufacture/production of excisable goods, are exempt from payment of excise duty as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from planned maintenance. (CAS-2) CHAPTER 3 PRINCIPLES FOR DETERMINATION OF COST OF Production For Captive Consumption 5.1 Material Consumed Material Consumed shall include materials directly identified for production of goods such as: (a) indigenous materials (b) imported materials (c) bought out items (d) self manufactured items (e) process materials and other items Cost of material consumed shall consist of cost of material, duties and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement. Trade discount, rebates and other similar items will be deducted for determining the cost of materials. Cenvat credit, credit for countervailing customs duty, Sales Tax set off, VAT, duty draw back and other similar duties subsequently recovered/recoverable by the enterprise shall also be deducted. Various types of materials used for production of goods have been indicated. It depends on the type of product and process of manufacture involved. For example for production of engineering product both indigenous and imported raw materials may be used besides bought out items. In process industry, it may be indige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er scheme and used for manufacture of goods for captive consumption, adjustment for import duty shall be made to bring the raw material cost to the level of duty paid import. However, Duty Drawback refund benefit shall not be reduced from the input cost. Other export benefits like DEPB and DFRC will not be adjusted for calculation of cost of production. Any demurrage or detention charges or penalty levied by transport or other authorities shall not form part of the cost of materials. Bought out components: Landed cost of indigenous/imported/bought out items shall be calculated on the above basis. Illustrations of calculation of landed cost of indigenous and imported material are at Annexure VA and VB. Self manufactured Items: These will include any goods manufactured with raw material, indigenous or imported bought out material etc. by the manufacturer in the same factory for further use in manufacture of final product. For this purpose, the cost of production of such self manufactured items shall be considered as material cost for the subsequent product, after considering inward freight, octroi, etc., as applicable. Intermediate products/ goods transferred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med for working out cost of production is reconciled with financial books. For major direct materials, reconciliation is to be ensured both in quantity and value. 5.2 Direct Wages and Salaries: Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities. Direct wages and salaries include fringe benefits such as: I. Contribution to provident fund and ESIS II. Bonus/ex-gratia payment to employees III. Provision for retirement benefits such as gratuity and superannuation IV. Medical benefits V. Subsidised food VI. Leave with pay and holiday payment VII. Leave encashment VIII. Other allowances such as children's education allowance, conveyance allowance which are payable to employees in the normal course of business etc. Direct wages and salaries are also termed as Employee cost. Employee cost are classified as direct employees cost and indirect employees cost. Direct employee cost is assigned to or linked with a cost centre or cost object. Indirect Employee Cost is treated as Overhead as dealt later. Employee cost shall include the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are identified with the plant cost. It is capitalized and depreciated/ amortized with the plant cost. Technical Assistance/Know-how fees: Technical Assistance/know-how fees should be apportioned to products for which it is payable based on the payment/provision for the relevant period as per agreement with the supplier and its impact shall be determined with reference to planned production. Amortized cost of moulds, dies, patterns, designs, drawings etc.: The cost of moulds, dies, patterns, patents etc should be apportioned to products for which such moulds, patterns, patents are used which are directly identifiable with the products, based on the useful life of the item. Based on the representation received from foundry manufacturer, the department has clarified treatment of pattern cost vide MF (DR) Circular No. 170/4/96-CX 1(F.No.6/14/94-CX 1) dated 23.1.1996 (Annexure VIII) as under: the proportionate cost of pattern has to be included in the assessable value of the castings even in cases where such patterns are being supplied by the buyers of the castings or are prepared/manufactured by the job worker at the cost of the buyer. In cases where there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of overheads to different cost centres and absorption thereof to products or services, should be followed. A reconciliation statement showing the amount incurred under different heads of overheads and amount absorbed by different products used for captive consumption and for sale should be prepared by the assessee. The reconciliation will help in ensuring accuracy of cost statements. List of items of expenses for works overheads, as indicated above, are illustrative and their treatment is indicated below. Other expenses such as Security, dispensary, canteen, staff welfare and the like will also form part of works overhead. Consumable stores are items used in the maintenance of plant for example lubricant, cotton waste, paint and the like. Spares are purchased items used for replacement of worn out part of machinery and the like. Other indirect materials are items of small value such as bolt, nut nails, and the like which cannot be directly identified economically with a product and are treated as indirect material. These form part of the works overhead. The depreciation on the fixed assets shall be as per the method of depreciation followed for the purpose of financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.7 Administrative Overheads: Administrative overheads need to be analyzed in relation to production activities and other activities. Administrative overheads in relation to production activities shall be included in the cost of production. Administrative overheads in relation to activities other than manufacturing activities e.g. marketing, projects management, corporate office expenses etc. shall be excluded from the cost of production. The role of administration is to facilitate the manufacturing, general policy making and marketing activities. The administrative overheads shall be included in the cost of production only to the extent they are attributable to the factory. Administrative overheads in relation to activities other than manufacturing activities e.g. marketing, selling, depot/branches etc. shall be excluded from the cost of production. Administrative Overheads for production may include share from: Salaries of staff for administrative and other departments relating to production such as Accounts, Purchase, HRD, Production Planning, Security etc. General office expenses - like rent, lighting, rates taxes, telephone, stationery, postage etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing charges including salaries wages of the persons involved in packing activity. IV. Other expenses relating to packing activity. Landed cost of the packing material should be calculated as per the guidelines given in para related to material cost. If product for captive consumption is transferred without packing (unpacked), packing cost need not be included in the cost of production. In case, captive product is transferred on returnable/durable packing container, pro-rata cost shall be estimated and charged based on the life of the container. In case packed goods are sent to job worker, the cost of packing will form part of cost of production, unless these are returned to buyer for re-use. Packing cost includes both cost of primary and secondary packing required for transfer/dispatch of the goods used for captive consumption. 5.9 Absorption of overheads: Overheads shall be analyzed into variable overheads and fixed overheads. Variable Overheads are the items which change with the change in volume of production, such as cost of utilities etc. Fixed overheads are the items whose value do not change with the change in volume of production such as staff salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount incurred under different heads of overheads and amount absorbed by different products should be prepared for this purpose. The reconciliation will help in ensuring accuracy of cost of production in cost statements. 5.10 Valuation of Stock of work-in-progress and finished goods Stock of work-in-progress shall be valued at cost on the basis of stages of completion as per the cost accounting principles. Similarly, stock of finished goods shall be valued at cost. Opening and closing stock of work-in-progress shall be adjusted for calculation of cost of goods produced and similarly opening and closing stock of finished goods shall be adjusted for calculation of goods dispatched. For determining the cost of production for captive consumption, adjustment for opening and closing stock of work-in-progress shall be made. The valuation of opening stock and closing stock of WIP is valued at cost on the basis of stages of completion. Similarly for calculation of cost of finished goods dispatched, adjustment for opening and closing stock of finished goods, if any, is to be made. In case the cost of a shorter period is to be determined, where the figures of opening and closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product at substitute value of by product may be given. 5.12 Treatment of Scrap and Waste: The production process may generate scrap or waste. Realized or realizable value of scrap or waste shall be credited to the cost of production. In case, scrap or waste does not have ready market and it is used for reprocessing, the scrap or waste value shall be taken at a rate of input cost depending upon the stage at which such scrap or waste is recycled. The expenses incurred for making the scrap suitable for reprocessing shall be deducted from value of scrap or waste. Illustration Stage Input material cost Processing cost Total (Rs/MT) (Rs/MT) (Rs/MT) 1 2000 500 2500 2 2500 1000 3500 3 3500 1000 4500 If during the production process at stage 3, the scrap is produced and the same is recycled at stage 2 after making an expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulds, dies are still in use and if the full cost has already been amortized, then amortization cost need not be considered for the purpose of cost of production. However, for this purpose, proper record needs to be maintained. The estimated life/estimated production may be certified by technical person. Where the dies, moulds etc are supplied by the customer, the necessary details may be obtained from the customer. In case of dies, moulds etc purchased/manufactured in-house, its cost should be ascertained and amortised over its useful life. 5.16 Interest and Financial Charges: Interest and financial charges being a financial charge shall not be considered to be a part of cost of production. Interest and financial charges can be on bank borrowings, amortization of discounts or premium related to borrowings, amortization of ancillary cost incurred in connection with the arrangements of borrowings, finance charges in respect of finance leases and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest costs. Interest and financial charges are finance cost and do not form part of cost of production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, of the industry. Where goods of different variety/type/size of a group of products are manufactured and the manufacturing process is the same, the cost of production may be worked out for main product/variety and the cost of other type/variety of the product may be worked out by applying above cost per unit and adjustment made for addition/deletion of items required for a particular product. Separate cost statement is to be prepared for each size and variety of goods on the above basis. In case of multi-location units, the cost of production should be worked out separately for each unit as per CAS-4. The Cost Accountant certifying the cost sheet of cost of production for captive consumption shall verify and reconcile the product cost arrived at for the certification with that worked out to comply with provisions of under Section 209(1)(d) of the Companies Act, 1956 . In case where the product is covered under The Companies (Cost Accounting Records) Rules 2011 issued in pursuant to under Section 209(1)(d) of the Companies Act, 1956 , the system for cost calculation would be in place and the relevant information will be readily available for such calculations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accounting system, organization can supply the necessary data required for the purpose. Test Checks: Test checks required may be decided keeping in view the type of organisations detailed above. Examine the material accounting systems from purchase to issue of material. Compare the norms of consumption of input of materials as mentioned in ER 4, 5 and ER 6. If the product is already being produced, consumption shall be compared with previous period. Test check some issue vouchers relating to raw material and process material. If breakup of material cost is not indicated in the cost statement, ask for separate details item-wise. The basis of valuation shall be as per financial accounts. If the method of valuation is changed, it should be ensured that it does not result in undervaluation of cost of material. Compare consumption of major raw material as shown in annual accounts. Check whether by product waste is being properly accounted for and credit is given to the main raw material. Review procedure of employee cost booking, direct expenses and other overheads relating to classification and allocation and absorption. (Breakup of Overhead into fixed and variable ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistently from one period to subsequent period. If there is any change in the cost accounting principles and methods during the period resulting in material effect on the cost of production, the same shall be disclosed indicating its impact in the cost statement. Disclosures shall be made in the body of the Cost Statement or as a foot note or as a separate schedule or below the certificate relating to above items or any other matter. Annexure I Circular No. 692/08/2003-CX 13th February, 2003 F.No.6/29/2002-CX.I Government of India Ministry of Finance and Company Affairs Department of Revenue Subject: Valuation of goods captively consumed. I am directed to say that on introduction of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 , w.e.f. 1.7.2000, it was clarified by the Board vide Circular No.354/81/2000TRU dated 30.6.2000 (para 21) that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. The Board has interacted with the Institute of Cost Works Accountants of India (ICWAI) for developing costing standards for costing of captively con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969; and (ii) relative shall have the meaning assigned to it in clause (41) of section 2 of the Companies act, 1956; (a) Place of removal means- I. a factory or any other place or premises of production or manufacture of the excisable goods; II. A warehouse or any other pace or premises wherein the excisable goods have been permitted to be deposited without payment of duty; from where such goods are removed; (b) transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, Or on behalf of, the assessee, by reason of , or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 4 of the Act except the circumstance in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value , excluding the actual cost of transportation from the place of removal upto the place of delivery of such excisable goods. Explanation 1: Cost of transportation includes I. the actual cost of transportation, and II. In case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing. Explanation 2: For removal of doubts, it is clarified that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded for the purposes of determining the value of excisable goods. 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance in where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s , no notional interest on the advance received shall be added to the transaction value. 7. Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as such other place ) from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment. 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles. The value shall be one hundred and ten per cent of the cost of production or manufacture of such goods. 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker; (iii) in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods: Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods. Explanation - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him. 11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself specified including the profit on the goods captively consumed hence this indicated the intention in the rule that the valuation should be brought to the level of the sale value of the goods and hence this includes all expenses referred to above. The Commissioner (Appeals) also relied on the circular dated 30.10.1996 issued by the Board relating to captively consumed goods. He has also relied upon paragraph 49 of the Supreme Court's judgment in Union of India vs. Bombay Tyres International AIR 1984 SC 420. In further appeal the Tribunal set aside the orders of the Commissioner and the Assistant Commissioner. The Tribunal held that sub-rule (ii) of Rule 6(b) can be invoked only in a situation where the goods are not sold and there are no comparable goods. The Tribunal held that the expenses other than the cost of manufacture, cost of raw materials and the profit would not be includible in the assessable value. The issue in the present case is about the value of the goods captively consumed by the respondent. The assessee has contended that there is no dispute that these intermediate goods are not marketable and are not bought and sold in the market. Hence the valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of accountancy prevailing in commerce and industry . Having considered authoritative books in this regard, this Court said that the accepted accountancy rule for determining the cost of fixed assets was to include all expenditure necessary to bring such assets into existence and to put them in a working condition. That rule of accountancy had to be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary. Subsequent to the filing of these appeals, the Institute of Cost and Works Accountants of India (ICWAI) has laid down the principles of determining cost of production for captive consumption and formulated the standards for costing: CAS-4. According to CAS-4 the definition of cost of production is as under: 4.1. Cost of Production: Cost of Production shall consist of Material consumed, Direct wages and salaries, Direct expenses, Works overheads, Quality Control cost, Research and Development cost, Packing cost, Administrative Overheads relating to production. The cost accounting principles laid down by ICWAI have been recognized by the Central Board of Excise and Customs vide Circular No. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Duty VAT/Sales Tax Turnover tax Surcharge such Education cess and the like Octroi/Entry Tax Other levies, if any Total 3. Less Cenvat credit Sales Tax/VAT set off Other set offs direct attributable to the material 4. Total (1 + 2 - 3) Above Duties/levies are indicative and actual may vary with reference to type of material. Illustration of the Landed Cost of indigenous material: Sl. Particular of goods Qty Rate Amount 1. ABC goods 11700 11.00 1,28,700 2. Basic Excise duty @ 16% 20,592 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Basic Custom Duty 5% 5.00 3. Sub Total (1 + 2) 105.00 4. CVD 8% 8.40 5. ED Cess on CVD 2% 0.17 6. SHE Cess on CVD 1% 0.08 7. Sub Total (3 to 6) 113.65 8. Custom Edu Cess 2% 2.27 9. Custom SHE Cess 1% 1.14 10. SAD (on 7 + 8 + 9) 4% 4.68 11. Total Landed Cost 121.74 12. Cenvat Available (4 + 5 + 6 + 10) 13.33 Annexure VI Name of the unit XYZ Name and address of the factory ABC, New Delhi Statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consumable Stores Spares 38,41,898 0.03 7. Repairs and Maintenance 82,74,080 0.07 8. Depreciation 4,27,45,759 0.34 9. Insurance 61,99,660 0.05 10. Fly Ash Disposal Cost 11,28,241 0.01 11. Other Works Overhead 28,75,377 0.02 12. Sub-total (1 to 10) 65,61,20,519 5.29 13. Less : Credit , if any - - 14. Total Cost 65,61,20,519 5.29 B. Apportioned to product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2564500 19.00 3. Repairs Maintenance Rs 454650 3.37 4. Others Rs 39000 0.29 5. Depreciation Rs 226050 1.67 Total - B 4486700 33.23 Total cost (A+B) 236891600 1754.75 Steam utilized QTY MT Amount Rs Department A 35000 61416341 Department B 87000 152663476 Department C 13000 22811784 Total 135000 236891 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be accepted. Annexure IX Absorption of Overheads Cost Illustration of overhead absorption Installed capacity 150 Nos. Bulk Carrier Normal Capacity fixed after accounting for normal unavoidable interruptions 130 Nos. Bulk Carrier Production during : 2005-06 2006-07 2007-08 110 Nos. Bulk Carrier 125 Nos. Bulk Carrier 53 Nos. Bulk Carrier Production during 2007-08 was lower due to strike by contract labour for 5 months which resulted in loss of production. Therefore it was decided by the management to remove portion of fixed overheads incurred during the strike period and the same was shown as a reconciliation item (Abnormal Overhead) in the Profit Reconciliation Statement for Profit as per Cost Accounts and Profit as per financial Account. Detailed working is as under: Variable Overheads for 53 Bulk carriers Variable Overhead per Bulk Carrier ₹ 5,30,000 ₹ 10,000 (A) Fixed Overheads for the year based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Less : Closing stock of work -in -progress - 0.00 11 Total (8+9+10) 47,225 188.90 12 Less : Credit for Recoveries /Scrap/By-products/misc income - 0.00 13 Packing cost - 0.00 14 Cost of production 47,225 188.90 15 Add :Inputs received free of cost - 0.00 16 Add : Amortised cost of Moulds, Tools, Dies Patterns etc received free of cost - 0.00 17 Cost of Production for goods produced for captive consumption (14+15+16) 47,225 188.90 18 Add : Opening stock of finished goods - 0.00 19 Less : Closing stock of finished goods - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32.54 9 Add : Opening stock of Work - in - progress 22703 10 Less : Closing stock of work -in -progress 33711 11 Total (8+9+10) 1095263 32.07 12 Less : Credit for Recoveries /Scrap/By-products/misc income 37719 1.10 13 Packing cost - - 14 Cost of production 1057544 30.97 15 Add :Inputs received free of cost - - 16 Add : Amortised cost of Moulds, Tools, Dies Patterns etc received free of cost - - 17 Cost of Production for goods produced for captive consumption (14+15+16) 18 Add : Opening stock of finished goods 6558 0.19 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Scope 3.1 The standard is to be followed for determining the cost of production to arrive at an assessable value of excisable goods used for captive consumption. 3.2 Cost of production will include various cost components. They are already defined in Cost Accounting Standard-1 (Classification of Cost - CAS-1). Thus, this standard has to be read in conjunction with CAS-1. 4. Definitions 4.1 Cost of Production: Cost of production shall consist of Material Consumed, Direct Wages and Salaries, Direct Expenses, Works Overheads, Quality Control cost, Research and Development Cost, Packing cost, Administrative Overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for Stock of work-in-Process, finished goods, recoveries for sales of scrap, wastage etc shall be made. 4.2 Captive Consumption: Captive Consumption means the consumption of goods manufactured by one division or unit and consumed by another division or unit of the same organization or related undertaking for manufacturing another product(s). 4.3 Normal Capacity is the production achieved or achievable on an average over a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production process. Works overheads include the following expenses: (i) Consumable stores and spares (ii) Depreciation of plant and machinery, factory building etc (iii) Lease rent of production assets (iv) Repair and maintenance of plant and machinery, factory building etc (v) Indirect employees cost connected with production activities (vi) Drawing and Designing department cost. (vii) Insurance of plant and machinery, factory building, stock of raw material WIP etc (viii) Amortized cost of jigs, fixtures, tooling etc (ix) Service department cost such as Tool Room, Engineering Maintenance, Pollution Control etc 5.5 Quality Control Cost The quality control cost is the expenses incurred relating to quality control activities for adhering to quality standard. These expenses shall include salaries wages relating to employees engaged in quality control activity and other related expenses. 5.6 Research and Development Cost The research and development cost incurred for development and improvement of the process or the existing product shall be included in the cost of production. 5.7 Administrative Overheads Administrativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional and consistent basis. In case by-products are produced, the net realisable value of by-products is credited to the cost of production of the main product. For allocation of joint cost to joint products, the sales values of products at the split off point i.e. when the products become separately identifiable may become the basis. Some other basis may be adopted. For example, in case of petroleum products, each product is assigned certain value based on its certain properties, may be calorific value and these values become the basis of apportionment of joint cost among petroleum products. 5.12 Treatment of Scrap and Waste The production process may generate scrap or waste. Realized or realizable value of scrap or waste shall be credited to the cost of production. In case, scrap or waste does not have ready market and it is used for reprocessing, the scrap or waste value is taken at a rate of input cost depending upon the stage at which such scrap or waste is recycled. The expenses incurred for making the scrap suitable for reprocessing shall be deducted from value of scrap or waste. Illustration A production process has three stages. Stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er will be required to maintain cost records and other books of account in a manner, which would facilitate preparation and verification of the cost of production. For manufacturers covered under the ambit of Section 209(1)(d) of the Companies Act, 1956, i.e., where Cost Accounting Records are statutorily required to be maintained, the Cost Accountant certifying the cost of production for captive consumption shall verify the correctness of the cost from these records. However, for manufacturers not covered under Section 209(1)(d) of the Companies Act, 1956, it is desirable that they also maintain cost accounting records in line with the records so prescribed as to facilitate determination and certification of cost of production. 7. Disclosure (i) If there is any change in cost accounting principles and practices during the concerned period which may materially affect the cost of production in terms of comparability with previous periods, the same should be disclosed. (ii) If opening stock and closing stock of work -in-progress and finished goods are not readily available for certification purpose, the same should be disclosed. Appendix - 1 Name of the Manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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