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CAS 6 and 7 – Treatment of Material Cost & Labour Cost

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Detailed Analysis of CAS 6 and 7 – Treatment of Material Cost & Labour Cost, The major content of costing is all about how to calculate the cost of various inputs. Two of the most important costs are material cost & labour cost. Find complete details for Cost Accounting Standard 6 – Material Cost and also find all details for Cost Accounting Standard 7 – Employee Cost. Let us do a deep study on each of these.

CAS 6 and 7 – Treatment of Material Cost & Labour Cost

CAS 6 & 7 – Treatment of Material Cost & Labour Cost

Cost Accounting Standard 6 – Material Cost

  • The standard CAS 6 prescribes principles and methods of determining the Material Cost.
  • Material for the purpose of this standard includes raw materials, process materials, additives, manufactured / bought out components, sub – assemblies, accessories, semi finished goods, consumable stores, spares and other indirect materials.
  • However, this standard does not deal with Packing Materials as a separate standard is being issued on the subject by the Institute.
  • The Standard deals with the following issues.
  • Principles of Valuation of receipt and issue of materials.
  • Assignment of material cost to cost objects.
  • This standard targets to bring uniformity and consistency in the principles and methods of determining the material cost with a reasonable degree of accuracy.
  • This standard should be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of material costs including those requiring attestation.
  • Quantity and rates of major items (which forms at least 5% of the total cost of materials) shall be disclosed.
  • Disclosures may be made in the body of the Cost statement or as a foot note or as a separate schedule to the main statement.
  • This standard shall be applicable to all Cost Statements prepared on or after 1st April 2010.

Must Read – Weighted Average Cost of Capital

Cost Accounting Standard 7 – Employee Cost

  • This standard deals with the principles and methods to classify, measure and assign employee cost to determine the cost of a product or a service and also about its disclosure in the cost statements.
  • In order to bring uniformity and consistency in the principles and methods of determining the employee cost with a reasonable degree of accuracy, this standard has been established by The Institute.
  • This standard should be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of material costs including those requiring attestation.
  • Employee cost will include payments made in cash or kind.
  • Direct employee cost should be presented as a separate cost head while indirect employee cost should be presented as a part of overheads in the cost statements.
  • Disclosures may be made in the body of the Cost statement or as a footnote or as a separate schedule to the main statement.

So, when we are on to preparing a Cost Statement, we must follow these Cost Accounting Standards which shows the treatment of these two major costs forming part of the overall expenses any organization, that are, material cost & labour cost.

Must Read – Profitability Index (PI) Detailed Analysis

This will ensure uniformity of the various Cost Statements prepared for different entities & will also help in displaying a true & fair picture of the cost allocation in any organization.

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About CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at [email protected]

2 comments

  1. Plz advise how to stdy cost?? Exam oriented ??

    • Well, Anjali you can make a plan according to the time you have for preparations. If you have a good amount of time with you, then practice as much as you can. First you should read the theory & then go onto solving the practical questions.

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