Industry-Wise Features of Cost Accounting Record Rules

This article throws light upon the thirteen main industry-wise features of cost accounting record rules. Some of the features are: 1. Scope of Application 2. Materials and Components, etc. 3. Salaries and Wages 4. Utilities 5. Workshop/Repairs and Maintenance etc. 6. Multi-Purpose Vessels/Machines 7. Depreciation 8. Conversion Cost 9. Overheads 10. Research and Development Expenses and a few others.

Cost Accounting Record Rules: Industry-Wise Features # 1.

Scope of Application:

This refers to the product or products covered under the rules.

These are identified below:

(i) Cement—for each type-superfine, Portland, pozzalana, etc.

(ii) Cycle—all types and sizes.

(iii) Room air conditioners—all types, sizes and capacities.

(iv) Electric lamps—all types and wattages, including tubes of various dimensions.

(v) Refrigerators—all types, sizes and capacities.

(vi) Automobile batteries—all types, sizes and capacities.

(vii) Electric fans:

Industrial fans and domestic fans of all types, sizes and varieties (ceiling/table/cabin/pedestal/exhaust/coolers, etc.) air circulators, axial fans, and centrifugal fans including heavier types.

(viii) Motor Vehicles:

All types such as cars, jeeps, station wagons, commercial type delivery vans, Motor cycles, Scooters, Mopeds, etc.

(ix) Electric motors—all types with different H.P.

(x) Rubber types and tubes:

All sizes and varieties (car, jeep, truck, scooter, cycle, tractor etc.).

(xi) Steel pipes and tubes:

All types, sizes, shapes, qualities, etc. whether black or galvanized, screwed or coupled, ERW or seamless.

(xii) Milk food:

It malted milk food, energy food, food drink under any brand name. For the purpose of these rules, ‘Milk Food’ means any food produced by mixing whole milk, partly skimmed milk or milk powder with ground barley malt or any other malted cereal grain, wheat flour or any other cereal flour or malt extract, with or without addition of flavoring agents and spices, edible common salt, sodium or potassium bicarbonate, minerals and vitamins, cocoa powder, sugar or sweetening agents or other edible material.

(xiii) Vanaspati:

If the company manufactures, in addition to vanaspati, any other product such as industrial hard oil, margarine or refined oil, using the same plant or machinery, partly or fully, these rules shall apply to such products also.

(xiv) Jute Goods:

It mean and include yarn, twine, fabrics or any other product made wholly from, or containing not less than 50 per cent by weight of jute including bimlipattam jute or Mesta fibres.

(xv) Industrial Alcohol:

Includes any grade or grades in the categories, namely: absolute alcohol, rectified spirit, denatured and special denatured spirit, and power alcohol.

(xvi) Sugar—white or raw sugar both by vacuum pan.

(xvii) Paper:

Any paper used for the purpose of printing, writing and wrapping and includes newsprint, paper board, exercise notebooks and miscellaneous paper products.

(xviii) Soda ash—in any form, that is to say, light, dense, and medium dense and conforming to ISI specifications.

(xix) Polyester—products like polyester tops, polyester fibre, and polyester filament.

(xx) Chemical industries:

The Central Government may add ‘chemical goods’ from time to time by notification in the Official Gazette.

(xxi) Insecticides (Technical grade):

The classes of insecticides as defined under clause (c) of Section 3 of the Insecticides Act 1968 and included in the schedule annexed to the said Act and as amended from time to time.

(xxii) Bearings: of all types, ball and roller bearings, needle bearings and of various sizes.

(xxiii) Engineering industries:

The Central Government may add items from time to time by notification in the Official Gazette.

(xxiv) Tractors—all types.

(xxv) Aluminium:

In pig form, ingots in different forms, billets, alloys, sheets, circles, rolled products, extrusions for each class or group, properzi rods, etc.

(xxvi) Bulk drugs:

The companies subject to price control under the Drugs (Price Control) Order 1995 are not exempt from the operation of these rules. Bulk Drug—means any substance including Pharmaceutical, Chemical, Biological or plant product or medicinal gas conforming to pharmacopoeial or standards under the Drugs and Cosmetics Act 1940, which is used as such, or as an ingredient in any formulation.

Drug—includes:

(i) A medicine for internal or external use of human beings or animals and all substances intended to be used for, or in, the diagnosis, treatment, mitigation, or prevention of disease in human beings or animals;

(ii) Such substances, intended to affect the structure or any function of the human or animal body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Government by notification in the Official Gazette; and

(iii) Bulk drugs and formulations.

(xxvii) Formulations:

The companies subject to price control under the Drugs (Price Control) Order 1995 are not exempt from the operation of these rules. Formulation—means a medicine possessed out of, or containing one or more bulk drugs or drugs with or without the use of any pharmaceutical aids, for internal or external use for, or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include:

(i) Any bona fide Ayurvedic (including Sidha) or Unani (Tibb) systems of medicine;

(ii) Any medicine included in the Homoeopathic system of medicine; and

(iii) Any substance to which the provisions of the Drugs and Cosmetics Act 1940 do not apply. Formulations, as per the cost accounting records rules, can be categorized as follows:

(xxviii) Mini Steel Plant:

Steel and steel products by electric route. The term “Steel Products” includes “Ingot Steel, Blooms, Billets, Slabs (code as well as semi­-finished); steel products produced by backward integration like Coal based Sponge Iron, Gas based hot briquetted Iron, steel products produced by forward integration like Beams, Angles, Tees, Sees, Channels, Pilings, Rails, Crane Rails, Joint Bars (Round. Squares, Hexagonal, Octagonal. Fiat, Triangular, Half Round); Wire, Wire Ropes, Nails, Wire Fabrics, Plates, Pipes and Tubes HR Coils/Sheets, CR Coils/ Sheets”, [vide letter ref. No. 52/378/CAB-86 (CLB) dated 29.6.1992 of Cost Audit Branch, New Delhi.]

(xxix) Electrical cables and conductors:

The electrical cables, conductors, wires and strips categorized as:

(a) Power cables (all types);

(b) VIR/Rubber covered cables and flexible wires (all types);

(c) PVC insulated cables, flexible wires, switch board wires/cables;

(d) Enamelled covered wires and strips;

(e) Wires and strips covered with paper, glass, silk and any other types of insulating materials;

(f) AAC/ACSR conductors; and

(g) Telecommunication cables.

(xxx) Rayon—viscose staple fibre (all forms), viscose filament yarn, viscose tyre yarn/cord/fabric, and acetate yarn/fibre.

(xxxi) Cotton textiles:

(a) Any cotton textile manufactured by the use of power as defined in the Factories Act 1948;

(b) Companies manufacturing (i) man-made cellulosic spun fibre yarn/cloth, and (ii) man-made non-cellulosic spun fibre yarn/art silk cloth.

Definitions:

1. Art Silk cloth means any fabric made wholly from art silk yarn or partly from art silk yarn and partly from any other yarn provided such fabric contains not less than 60% of art silk yarn.

2. Cloth or Yarn has the same meaning as given in the Cotton Textiles (Control) Order 1948.

3. Cotton Textile means yarn or cloth or processed yarn or processed cloth made either wholly or partially of cotton.

4. Processed Yarn and Processed Cloth means any yarn and/or cloth as defined for ‘cloth’ and ‘cotton textiles’ which have undergone one or more processes such as bleaching, dyeing, printing, mercerizing, finishing and the like. This also includes the cloth processed by the processors defined in the Cotton Textiles (Control) Order 1948

(xxxii) Industrial gases—the classes of industrial gases are:

Oxygen gas, nitrogen gas, acetylene gas, hydrogen gas, nitrous oxide gas, argon gas, helium gas, and carbon dioxide gas, whether in liquid or gaseous form and for all types, sizes, and grades.

(xxxiii) Footwear:

It including shoes, boots, sandals, chappals, slippers, play-shoes and moccasins of all types, sizes and designs.

(xxxiv) Shaving systems:

The classes of shaving systems used for shaving purposes by human beings, whether electronic or electric or mechanical or manual (1) Shaving blades, (2) Razors, (3) Any part or component thereof or (4) Any other shaving instrument of all types, sizes, and designs.

(xxxv) Fertilizers:

whether nitrogenous, phosphatic and/or complex (organic, inorganic and/or mixed) and include all types of fertilizers as defined in clause (h) of Section 2 of the Fertilizer (Control) Order 1985 and as amended from time to time.

(xxxvi) Caustic Soda—caustic lye solid caustic soda and caustic soda flakes.

(xxxvii) Dry Cell batteries—all types and sizes.

(xxxviii) Cosmetics and Toiletries:

Any article intended to be rubbed, poured, sprinkled or sprayed on or introduced into or otherwise applied to the human body or any part thereof or otherwise for cleaning, beautifying, promoting attractiveness or altering the appearance and includes the following classes of preparations as specified in the Appendix and those added thereto from time to time by notification in the Official Gazette:

(1) Powders,

(2) Creams,

(3) Tooth pastes,

(4) Tooth Powders,

(5) Shaving creams,

(6) After shave lotions,

(7) Shaving soaps,

(8) Shaving foams,

(9) Perfumes,

(10) Hair oils,

(11) Hair creams,

(12) Oxidation hair dyes Liquids,

(13) Mouth wash,

(14) Cologne,

(15) Shampoos— soap based,

(16) Shampoos—synthetics—detergent-based,

(17) Room fresheners,

(18) Deodorants,

(19) Surfactants.

(xxxix) Soaps and Detergents:

Cleansing material used for cleaning, laundry/washing, bathing/toilets purposes and includes soaps and detergents (whether in the form of cake, powder or liquid).

Cost Accounting Record Rules: Industry-Wise Features # 2.

Materials and Components, etc.:

(i) Tyres and Tubes:

Rubber compounds, PVC compounds, chemicals and fabric materials, etc. constitute the raw materials.

(ii) Cycle:

Raw materials and components for manufactured components forming sub assembly, such as frame, fork, handle, brakes, pedals, etc. constitute the major items.

(iii) Refrigerators:

Raw materials and components for manufactured components such as condensers, evaporators, cabinets, etc. constitute the major items.

(iv) Room Air-conditioned:

The manufactured components are coil, blower and compressor.

(v) Electric Lamps:

The manufactured components are shells, tubes and filaments.

(vi) Automobile battery:

The manufactured components are plates, separators and containers.

(vii) Electric fan:

Raw materials and components for manufactured components forming sub assembly, such as frame, fork, handle, brakes, pedals, etc. constitute the major items.

(viii) Motor vehicles:

Manufactured components are chassis, brake, gears, pinions, gear box casing, control levers etc. For jigs and dies over Rs. 25,000 each in case of four wheelers and Rs. 15,000 each in case of two or three wheelers and having life of more than one year, records of quantity and value shall be kept and the method of charging to cost of production shall be indicated.

(ix) Electric motors:

Same as for motor vehicles, but there is no provision for deferring the cost of jigs and dies.

(x) Tractors:

Same as for electric motors.

(xi) Vanaspati:

Raw materials are different oils e.g. ground nut oil, cotton seed oil, soya been oil, sesame oil. If oils are produced by the company or wholly owned subsidiary, the cost of oil from the seeds crushed or from solvent extraction shall be worked out. Main catalyst and chemicals are Nickel catalyst, Hydrochloric acid and Bentonite.

(xii) Bulk Drugs:

The basic raw materials or ingredients for bulk drugs are many, such as medicinal herbs, organic and inorganic compounds and solvents. The net consumption, process loss and process recoveries of solvents like acetone, alcohol and menthol shall be recorded. Moreover, the consumption of materials shall be identified as far as possible with the batch of production and cost centre.

(xiii) Sugar:

Raw materials are sugarcane, sugar beet, gur and Khandsari. Where sugarcane is grown in own farms, cost of sugarcane is to be calculated separately, but the input cost for sugar will be the controlled rate for sugarcane. Lime, sulphur, superphosphate, caustic soda and filter cloth are process materials. Limestone, sodium hydro-sulphite etc. constitute clarification and bleaching agents.

(xiv) Infant milk foods:

The purchase price of wet milk shall also give details of premium paid for higher fat content. The rate charged for wet milk consumption shall be based on actual fat content.

(xv) Industrial alcohol:

Raw materials are different grades of molasses processed from sugar factory and from other sources. Process materials are sulphuric acid, caustic soda, ammonium sulphate, urea, yeast, de-hydrants and denaturants.

(xvi) Jute goods:

Raw materials are raw jute of different categories corresponding to market classification such as Tossa, White and Mesta, each sub-divided quality wise such as top, middle and bottom. The cost of batch of raw jute for the different qualities and counts of yarn is to be worked out. The direct materials also include batching emulsions such as oil and soap, cotton yarn, starch and lubricating oil.

An overall statement of weight of all inputs and finished goods deriving the overall wastage and gain in weight is to be prepared. Proper records shall be kept for losses between winding, weaving and packing and the recovery and consumption of line cuttings, caddies, thread waste and other waste materials.

(xvii) Paper:

Raw materials are bamboo, wood, bagasse, grass, rags, and paper cuttings. The cost of bamboo or wood grown in own forest should be reasonably calculated. The actual weight of bamboo or wood which contains moisture is to be reduced to air dry or bone-dry and the records are to be maintained on air or bone dry basis.

The process materials are Sulphur, Sodium Sulphate, Chlorine, Caustic flakes, Caustic liquor, Lime-bleach, Soda Ash, Alum and Dyes.

(xviii) Rayon:

Raw materials are Rayon grade pulp, Caustic Soda and other purchased materials including imports, cotton linters of different grades like second cut linters, defibrated linters and mill run linters. Process materials are Charcoal, Titanium Dioxide, Carbon di-Sulphide, Sodium Sulphide, Sulphuric Acid, Liquid chlorine, etc.

Where raw materials or process materials are manufactured by the company, detailed records of cost of production, consumption and stock shall be maintained. Where chemicals are used as catalysts and have life more than one year, the cost thereof shall be suitably deferred.

In case materials are processed for outsiders, the details of costs incurred and the amounts recovered as conversion charges shall be maintained. Proper credits should be given for chemicals recovered from each process.

(xix) Dyes:

Raw materials are organic and inorganic chemicals and colours. Cost of manufactured process materials or intermediate chemicals shall be worked out. For Caustic Soda and other materials which are manufactured by the company, detailed records as per the relevant cost accounting record rules shall be maintained. Suitable credits be given for chemicals recovered from processes.

The raw materials constitute about 60% of the total cost of dye stuff production. Since the consumption of raw materials for a particular variety of dyestuff bears a definite relationship to the principal or basic raw materials, it is possible to develop a standardised consumption pattern.

(xx) Soda Ash:

Raw materials are salt or limestone, etc. and process materials are Ammonia, Hydrogen Sulphide, Carbon Dioxide, etc. For manufacture of Caustic Soda, proper records shall be kept as per the relevant record rules. Proper records of recoveries of process chemicals, expenditure incurred thereon in subsequent processes, the sales realisation and credit given to the material/process for recovery, shall be maintained.

(xxi) Cotton textiles:

The basic raw materials are raw cotton and man-made fibres. Yarn and grey cloth, if purchased, become the raw materials. Starch, maize, tallow, gum, etc. are sizing materials for preparation of ‘sizing solution’ to be used for sizing and warp yarn. In addition to various kinds of dyes, the process materials and chemicals grouped under desizing, bleaching, finishing, mercerizing, tebilising are used in the processing of cloth.

Soft waste collected in spinning department consists of two types: (a) re-usable (in mixing dep’t.) and (b) not-usable, e.g. droppings and sweepings. Hard waste collected in spinning and weaving departments may be of superfine, fine and medium varieties.

(xxii) Polyester:

The basic raw materials are Di-methyl Terephthalate, Ethylene Glycol, and Mono ethylene glycol imported/indigenous/recovered. The process chemicals for internally manufactured Di-methyl Terephthalate are caustic flakes, caustic lye, cobalt acetate, manganese acetate, acetic acid, etc.

For polyester fibre or filament yarn the process materials and chemicals are:

(a) Catalysts e.g. sodium acetate, acetic acid, antimony trioxide, etc.;

(b) Additives and delustrants, e.g. titanium dioxide and potassium tripoly phosphate;

(c) Colour inhibitors, such as phosphoric acid, optical whitener;

(d) Spin-finish solution chemicals, e.g. silicon spray, trichlorocthane, antifoam etc.; and

(e) Heating medium, dowtherm. Triethylene glycol is used in polymerisation and spinning processes. The recovery of ethylene glycol and methanol from the processes and their sales realisation should be properly recorded.

(xxiii) Nylon:

Caprolactum is the main raw material either purchased or manufactured internally. The other raw material is polyester yarn and if it is manufactured internally costs are to be worked out. Process chemicals e.g. Acetic Acid, Titanium Dioxide, etc. are used in the manufacture of Nylon and also recovered from process and sold, for which credit is to be given to the cost of chemical or process.

The total waste in terms of caprolactum in the polymerisation process and spinning process shall be recorded separately for the purpose of control. Where Caprolactum is recovered from wash water and spinning wastes, the quantity and cost of Caprolactum recovered and net loss in quantity and cost and method of adjustment of such losses in cost of production shall be recorded.

(xxiv) Dry cell batteries:

Imported and indigenous supplies of raw materials are Zinc, Manganese, Lead, Cadmium, Acetylene black, Carbon rods, printed metal sheets, etc. Manufactured components are Zinc cans. Carbon rods, brass caps, metal jackets, paper covers, and manufactured ingredients are electrolytic manganese oxide, electrolytic paste etc.

Detailed costing is not necessary where the value of any component is less than five percent of the value of direct material cost including packing material cost. Quantitative batch-wise records should be kept of each item produced, accepted, rejected and consumed. The cost of dies and punches, purchased and manufactured, is to be charged to production on a reasonable basis taking into account their lives.

(xxv) Sulphuric acid:

The basic raw material is sulphur, Sulphur ores such as sulphides, pyrites of zinc/copper or Iron also form the raw materials. Issues of a process material like vanadium pent oxide to consumption should be assessed technically.

(xxvi) Steel Tubes and Pipes:

The basic raw materials are Hot Rolled skelp, Cold Rolled coil, Bars, Billets and others. The process materials and chemicals are Zinc solution acids, caustic soda, welding rods, electrodes, etc. The cost of dies, purchased and made, is to be charged to production in consideration of their lives. Quantitative batch-wise records should be kept for each item produced, accepted and rejected.

(xxvii) Engineering Industries:

(Diesel engines, Power driven pumps, Internal combus­tion engines): Similar to Motor Vehicles and cycles. In respect of jigs and dies, the life of which is more than a year and the value of which is over Rs. 25,000 each, the records of quantities and values should be kept.

(xxviii) Electrical Cables and Conductors:

The raw materials are aluminum/copper/lead (ingot or rods), PVC compound, rubber compound, XLPE compound etc. Wooden Drums are also important.

(xxix) Caustic Soda:

The raw materials are cell liquor, chlorine gas, hydrogen gas, etc. The credit for the recoveries of hydrogen gas or chlorine gas sold or otherwise used should be given for total works cost.

(xxx) Cement:

The main raw material is limestone. The quantitative details of limestone raised/rejected/transported from the quarry (owned or leased) to the crusher plant are to be kept.

(xxxi) Aluminium:

The basic raw material is the Bauxite ore raised from the mines or quarries (owned or leased) and transported to Alumina plant. The process and other materials are: pre-baked carbon electrode, soderberg paste, pot-lining mix, etc. mostly internally manufactured.

(xxxii) Milk Food:

The main raw materials and ingredients are cocoa beans, barley, wheat, barley malt, wheat malt, pepsin, milk powder, dairy butter, sugar, etc. The processing costs of wet beans to dry beans are important. The record for ‘Wet milk’ procured at different collection centres should show the premiums paid for higher Fat Solid Non-Fat (SNF) content in milk and deductions made for lower fat SNF content.

The process materials are sodium bicarbonate, ethylene vanillate, sugar, protein etc. Records should be maintained for recoveries of process materials such as cocoa butter either sold or used in the production of chocolates and their sales realisation.

(xxxiii) Chemical Industries:

Similar to Rayon and Dye stuff and the basic raw materials vary according to the products.

(xxxiv) Formulations:

The direct materials are bulk drugs, pharmaceutical aids, excipients etc. and their consumptions are to be traced for batch wise production of formu­lations.

(xxxv) Mini Steel Plant:

The major raw materials are iron ore, pig iron, heavy melting scrap, sponge iron, ferromanganese, ferrosilicon refractories and electrode, etc. Sponge iron, Ferro alloys, etc. are also internally manufactured materials used in the manufacture of steel products.

(xxxvi) Fertilizers:

The raw materials and process materials/chemicals are many, such as ammonia, sulphuric acid, phosphoric acid, nitric acid, etc.

(xxxvii) Footwear:

The basic materials are Raw Skin (Buffalo) and Raw Skin (Goat). The other raw materials and process chemicals are Rubber RMA, synthetic rubber, reclaimed rubber, carbon black, antioxidants, etc.

1. In the listed industries other than engineering, if any raw material and process chemical (covered under any cost accounting rules prescribed) arc manufactured by the company proper cost records should also be maintained as per the relevant rules so as to arrive at the cost of such items.

2. In the listed engineering industries (including the other engineering products covered under the cost accounting records rules), the components like castings and forgings are commonly manufactured within the works.

The actual costs of each of these components/ sub-assemblies should be worked out separately in the relevant Annexure or Proforma showing the expenses under the elements of material, labour and overheads. A simple flow pattern of cost records may be as shown below.

The metals used in manufactured components are : Steel sheet—mild steel, cold rolled and deep drawn quality steel strips; bars-black and bright; tubes—cold drawn, ERW and seamless ; brass sheet, etc. and also items made of other metals like copper etc.

The castings, finished or semi-finished, made at the foundry are: Grey Iron castings, Malleable Iron castings, Cast Iron casting, Aluminium casting, Mazak casting, Steel forgings, etc.

Many of these parts, components or castings require several stages of manufacturing processes. Input-output relationship for each component on a group basis could solve the mix-up of the materials for several components which are common for certain jobs or operations.

In the course of manufacture of a component out of an intermediary product or component, some rejects occur due to operators’ faults, line damages and faulty materials. It is, therefore, essential to reconcile the quantity of intermediary product or component issued and the quantity of components manufactured.

The Engineering Industries’ rules also stipulate that:

(1) Adequate physical controls should be ensured of shop- manufactured components and the data showing the number of components produced should be maintained; and

(2) A reconciliation of the quantity produced, including adjustment for opening and closing stock with the quantity required for production and transfer to spare parts should be maintained.

In the course of manufacture of semi-finished castings in engineering industries, the rejections occur due to the suppliers’ defectives, e.g. hard materials and blow holes. Even if the loss on account of hard materials is compensated by the suppliers, blow holes can be detected only after some machining operations and so, the labour cost incurred up to machining is a loss to the company.

Again wastages, spoilages, rejections and losses do occur on account of rigid inspection systems at various operations. So, the cost of inspection is significant in these industries.

Cost Accounting Record Rules: Industry-Wise Features # 3.

Salaries and Wages:

(i) Sugar:

Salaries and wages for the season and off season and the payment of retainer allowance to employees need separate disclosure in the records.

Cost Accounting Record Rules: Industry-Wise Features # 4.

Utilities:

The requirement of utility services is different for different industries. For example, a cotton textile industry requires the services of utilities like Air Conditioning and Humidification but those are not required by the Engineering Industries.

(i) Bulk Drugs:

Quantity and cost of different utilities consumed in the manufacture of products should be identified product-wise.

(ii) Jute Goods:

The cost of ‘Power’ should be absorbed on the basis of machine hours, spindle hours or loom hours.

Cost Accounting Record Rules: Industry-Wise Features # 5.

Workshop/Repairs and Maintenance etc.:

(i) Cotton Textile:

Design studio, Screen-making, Photo engraving, etc. are to be considered as workshops.

(ii) Aluminium:

Separate disclosure and treatment are necessary for:

(a) Cost of relining pots including cost of lining mix, lining coke, insulating bricks, etc. and wages and outside services;

(b) Number of pots relined in a particular accounting year;

(c) Cost of restarting the pots and

(d) Methods, used for charging them to the cost of production.

Cost Accounting Record Rules: Industry-Wise Features # 6.

Multi-Purpose Vessels/Machines:

This refers to a particular series of vessels/machines in which more than one manufac­turing process is carried out. This situation has been identified in the rules in respect of the, industries like Bulk Drugs and Formulations.

The provisions are:

(i) A record about the usage of such vessels/machines for different products.

(ii) Charging of the cost of using them to different products on the basis of equipment occupancy/usage hours, etc., and

(iii) Where composite machine hour rates are applied for absorption of wages, overheads and equipment usage, a record is to be kept for the utilisation of labour, and multi­purpose vessels/machines for different processes connected with the manufacture of different products, so as to enable determination of total machine hours and the amounts charged to the respective bulk drug or formulation.

The variances between the actual and the amounts charged at pre-determined rates should be adjusted to arrive at the actual cost of production periodically and at the end of the year. In this connection, it is to be noted that such situation may arise in case of engineering products like Steel pipe and tubes, Bearings, Electric motors/Fans/Diesel Engines etc.

Whether the rules specify or not in this regard it would be proper to adopt this basis wherever applicable.

Cost Accounting Record Rules: Industry-Wise Features # 7.

Depreciation:

(i) Cement:

Depreciation of each department, manufacturing cement need not be shown separately, but could be clubbed together in one lump sum under the cost of manufacture of cement. But depreciation pertaining to limestone or other raw materials is to be shown in the respective cost statements.

(ii) Jute:

The amount of Depreciation should be absorbed on the basis of machine hours, spindle hours and loom hours.

(iii) Cotton textiles:

The cost of ‘copper rollers’ for printing fabrics, ‘stainless steel frames’ for dyeing yarn put to use during the year should be treated as deferred revenue expenditure for equal charge over the life of such assets.

Cost Accounting Record Rules: Industry-Wise Features # 8.

Conversion Cost:

(i) Cotton textiles:

A mix of ‘direct and indirect costs’ has been evolved as conversion cost. The rules provide for inclusion of a share of administration cost in conversion cost (a departure from the conventional concept). The cost proformae dealing with breakup of conversion cost viz. proformae A, D, G, H, I and J however stipulate that direct materials (excluding processing materials) should not be treated as conversion costs.

The shareable amount of administration cost can be determined with reference to (a) degree of divisionalisation and decentralisation of functions and sub-functions, (b) voucher-wise classification of expenses at the point of incurrence, etc.

(ii) Mini Steel Plant:

Where a composite factor, e.g. furnace hour rate is applied for absorption of various elements of costs, a record of furnace time utilised for each grade of steel should be kept to enable determination of furnace time and amounts chargeable to respective grade of steel and steel products manufactured.

Similar provisions exist in case of industries like Chemical goods, Industrial gases, Insecticides, Fertilizers, Footwear, Shaving system, Soaps and detergents, etc.

Cost Accounting Record Rules: Industry-Wise Features # 9.

Overheads:

(i) Jute goods:

As far as possible the works and administration overhead should be charged to the individual jute goods based on machine hours, spindle hours, loom hours, piece wages, yardage, bales or other units as the case may be.

(ii) Vanaspati:

The share of selling and distribution expenses between different sizes and packs should be worked out.

(iii) Polyester:

The share of selling and distribution expenses between different sizes and packs should be worked out.

(iv) Industrial alcohol:

Different categories of alcohol are to be considered.

(v) Sugar:

This is required between raw sugar and white sugar.

(vi) Mini Steel Plant/Formulations/Footwear/Industrial Gases/Fertilizers/Shaving sys­tem/Insecticides:

The basis of apportionment or absorption of overheads to the cost centres and products (of different types/grades/packs, etc.) should be indicated in the cost records.

Cost Accounting Record Rules: Industry-Wise Features # 10.

Research and Development Expenses:

(i) Insecticides/Foot-wears/Industrial Gases/Fertilizers/Shaving systems:

The expenses incurred on R and D for providing technical know-how to outsiders and the amounts recovered for this should be recorded but excluded from the cost of the relevant products.

(ii) Formulations:

The records should be maintained for all formulations and other products subject to periodic quality check in quality control department, to enable determination of the share of chargeable expenses to each formulation and other products. Details of formulations rejected should be maintained indicating the batch, cost of raw materials and other conversion charges to Fill up the cost data in the relevant proforma.

(iii) Bulk Drugs/Milk Food/Infant Milk Food:

Similar to formulations.

(iv) Polyester:

The expenses incurred on R and D for providing technical know-how to outsiders and the amounts recovered for this should be recorded but excluded from the cost of the relevant products.

(v) Motor Vehicles:

In an automobile industry, changes in models are quite frequent on account of:

(i) Technological improvements in products;

(ii) Technological improvements in design and facilities;

(iii) Change of fashion;

(iv) Change in product specification on account of import substitution and cost reduction measures;

(v) Changes in components for quality and facilities; and

(vi) Finally, customers’ preferences.

The costs of R and D are:

(i) Expenditure on research carried out by the chemical, mechanical, metallurgical and standards departments and

(ii) Expenditure of development department.

The research departments usually undertake research on material substitution, customers’ preferences, sales survey, etc. The costs are collected model wise and charged to the cost of the finished products as a deferred item of expenditure, i.e. being spread over an estimated number of years the models will exist.

Similarly, the development department is always on the lookout for quality improvement by testing, examining and modifying the components, etc. The cost of this department, thus, comprises—the department’s cost plus cost of components tried and scrapped plus cost of new development efforts, successful or not.

Generally these costs are charged to the cost of vehicles during the year. But if the cost is pretty high due to major modifications or developments of substantial nature, it is treated as an item of deferred revenue expenditure and spread over an estimated number of years the models will exist.

The components used in a motor vehicle are always subjected to tight quality tolerances carried out at different stages—from raw materials and components and parts and accessories to stage inspection, line inspection and final inspection of manufactured components.

The fully-finished vehicles also undergo acceleration test, road test and endurance test for a prescribed mileage and for a long distance for general quality and behaviour. The defects that are discovered during warranty period are reported to the company by dealers or buyers. The quality control department scrutinizes these defects and takes actions as appropriate.

Cost Accounting Record Rules: Industry-Wise Features # 11.

Captive Consumption:

(i) Formulations:

The transfer of formulation for captive consumption should be effected at cost. If such transfer is valued on a basis other than cost, the notional profit or loss for such transfer should be disclosed.

(ii) Bulk drugs:

Same as in Formulations.

(iii) Polyester:

The transfer of polyester products for self/captive consumption should be worked out at cost only.

(iv) Sugar/Paper/Industrial Alcohol:

The rate at which transfers for captive consump­tion are effected should be disclosed in the cost record.

(v) Jute Goods:

Same as in Sugar.

Additional features are:

(a) Self-consumption of one category of jute goods used for conversion into another category of jute goods such as hessian used for manufacture of tapestry or carpets should be charged at actual cost and the final cost reflected in the relevant Proformae for the relevant final jute goods,

(b) If any jute goods are utilised for the manufacture of any other goods not covered by these rules (e.g. lenoleum), the quantity, rate and value of such self consumption should be indicated separately in the relevant proforma, and

(c) Self-consumption of finished jute goods for other uses such as jute bags used for packing cement should be shown separately in the relevant proforma indicating the quantity, rate and value thereof.

(vi) Malted Milk Food/Insecticides/Industrial Gases/Fertilizers/Chemical goods: Simi­lar to Formulations.

(vii) Footwear/Shaving Systems/Soda Ash: Similar to Polyester.

(viii) Mini-Steel Plant: Similar to Formulations.

Cost Accounting Record Rules: Industry-Wise Features # 12.

Interest:

The rules prescribe for a record to be maintained for interest charges separately on term loan and cash credit/Overdraft (working capital).

A voucher-wise classification of this item under each cost centre, at the point of incurrence, would assist in the allocation between the products covered and other activities, and also in further charging of the share of ‘interest’ to the various types (or sizes or models, etc.) of the products.

For appropriate apportionment of interest charges, the ratio of stock of materials (e.g. ingredients, process materials, chemicals, components, raw materials, etc.) and work-in- process in the different production processing departments could be accepted as the possible basis.

Cost Accounting Record Rules: Industry-Wise Features # 13.

Packing Materials:

The packing materials may be of two types:

Primary and Secondary, and some of them or all may be manufactured by the company. This arises particularly in the industries like Formulations, Insecticides, Industrial Gases, Soaps and Detergents, Fertilizers, Cosmetics and Toiletries etc. Records should be kept for them.

(i) Formulations:

Records to be maintained for:

(a) Packing materials actually used and spoiled in respect of each formulation and

(b) Repacking cost, if significant, for any formulation size/pack-wise when repacked due to defective packing. Some examples of industry-wise packing materials are given below.

(i) Formulations:

Strips, ampoules, vials, bottles, cartoons, boxes, labels, literature, etc.

(ii) Insecticides:

Polythene bags, tin or polythene containers, etc.

(iii) Sugar:

Gunny bags, etc.

(iv) Jute goods:

Hoops, buckles, pins, pack-sheets, paper card board core, discs, polythene sheets, etc.

(v) Milk/Infant Milk Food:

Glass bottles/jars, tins, refill cartoons, corrugated paper sheets and boxes etc.

(vi) Industrial Gases:

Cylinders, tankers, vehicles, pipelines, etc.

(vii) Paper:

Wrapper, wire, jute strings, gum tapes, wooden plugs, paper reminder core, craft paper wrapper, cardboard boxes, wooden boxes, etc.

(viii) Soda Ash:

Gunny/Polythene bags.

(ix) Vanaspati:

Tins, polythene packs, poly-jars, etc. [a separate cost statement in Proforma C is prescribed to work out the cost of ‘tins’ manufactured].

(x) Fertilizers:

Bags, threads, spools etc.

(xi) Cotton Textiles:

Same as in Jute goods.

(xii) Polyester/Nylon/Rayon:

Polyester sheets, jute sheets, mild steel wires, hoops, buckles, winding cones, etc.

(xiii) Electrical Cables and Conductors:

Paper, poly-sheets or cloth, wooden drums, etc. [a separate cost statement in Annexure IV is prescribed to work out the cost of wooden drums manufactured].