CAS – 22

COST ACCOUNTING STANDARD ON MANUFACTURING COST

The following is the COST ACCOUNTING STANDARD – 22 (CAS - 22) issued by the Council
of The Institute of Cost Accountants of India for determination of “MANUFACTURING COST”.
In this Standard, the standard portions have been set in bold italic type. This standard should
be read in the context of the background material which has been set in normal type.

1. Introduction
1.1 This standard deals with the principles and methods of determining the Manufacturing
Cost of excisable goods.
1.2 This standard deals with the principles and methods of classification,
measurement and assignment for determination of the Manufacturing Cost of
excisable goods and the presentation and disclosure in cost statements.

2. Objective
The objective of this standard is to bring uniformity and consistency in the
principles and methods of determining the Manufacturing Cost of excisable
goods.

3. Scope
This standard should be applied to cost statements which require classification,
measurement, assignment, presentation and disclosure of Manufacturing Cost
of excisable goods.

4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1 Abnormal and non-recurring cost: An unusual or atypical cost whose occurrence
is usually irregular and unexpected and/or due to some abnormal situation of
the production or operation.
4.2 Administrative Overheads: Cost of all activities relating to general management
and administration of an organisation.
Administrative overheads need to be analysed in relation to production/manufacturing
activities and other activities. Administrative overheads in relation to production/
manufacturing activities shall be included in the manufacturing cost.
Administrative overheads in relation to marketing, projects management, corporate
office or any other expense not related to the manufacturing activity shall be excluded
from manufacturing cost.
 Manufacturing Cost

4.3 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), as defined in section4(3) of the Central Excise Act, 1944.
4.4 Defectives: End Product and/or intermediate product units that do not meet
quality standards. This may include reworks or rejects.
An intermediate product is a product that might require further processing before it is
saleable to the ultimate consumer.
4.4.1 Reworks: Defectives which can be brought up to the standards by putting in
additional resources.
Rework includes repairs, reconditioning, retro-fitment and refurbishing.
4.4.2 Rejects: Defectives which cannot meet the quality standards even after putting
in additional resources.
Rejects may be disposed off as waste or sold for salvage value or recycled in the
production process.
4.5 Depreciation: Depreciation is a measure of the wearing out, consumption or
other loss of value of a depreciable asset arising from use, efflux of time or
obsolescence through technology and market changes. Depreciation does not
include impairment loss.
Depreciation is allocated so as to charge a fair proportion of the depreciable
amount in each accounting period during the estimated useful life of the asset.
Depreciable amount of a depreciable asset is its historical cost, or other amount
substituted for historical cost in the financial statements, less the estimated
residual value.
Useful life of asset is either
(i) the period over which a depreciable asset is expected to be used by the
enterprise; or
(ii) the number of production or similar units expected to be obtained from the
use of the asset by the entity.
Depreciation that is charged in audited financial statement should be considered.
4.6 Direct Expenses: Expenses relating to manufacture of an excisable good, which
can be identified to such excisable good other than direct material cost and
direct employee cost.
4.7 Employee Cost: The aggregate of all kinds of consideration paid, payable and
provisions made for future payments for the services rendered by employees of
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an enterprise (including temporary, part time and contract employees).

Consideration includes wages, salary, contractual payments and benefits, as
applicable or any amount paid or payable on behalf of employee. This is also
known as Labour Cost.
4.7.1 Direct Employee Cost: The cost of employees which can be attributed to an
excisable good in an economically feasible way.
4.7.2 Indirect Employee Cost: The cost of employees which cannot be directly
attributed to a particular excisable good.
4.8 Interest and Finance charges: Interest and Financing Charges are interest
and other costs incurred by an entity in connection with the financing
arrangements.
Examples are:
1. Interest and commitment charges on bank borrowings, other short term and
long term borrowings:
2. Financing Charges in respect of finance leases and other similar
arrangements: and
3. Exchange differences arising from foreign currency borrowings to the extent
they are regarded as an adjustment to the interest costs.
The terms Interest and financing charges, finance costs, and borrowing costs are
used interchangeably.
4.9 Manufacturing Cost: Manufacturing cost of an excisable good is the aggregate
of costs of all resources used in the process of its manufacturing.
Manufacturing cost includes cost of Materials (including process materials), Employee
Cost, Cost of Utilities, Packing Cost, Direct Expenses, Repairs &Maintenance Cost,
Pollution Control Cost, Quality Control Cost, Research & Development Cost, Cost of
Inputs received free of cost or received at concessional value from the buyer of the
excisable good, Depreciation and Amortisation (including amortisation cost of free
tools, patterns ,dies, drawings, blue prints, technical maps, charts, engineering,
development, art work, design work, plans, sketches, packaging material and the like
necessary for production of excisable goods), Cost of Rework, reconditioning, retro-
fitment, Manufacturing Overheads, other costs allocable to such activity, adjustment
for stock of work-in-process and recoveries for sales of scrap and wastages and the
like but does not include expenses of the above nature incurred for post manufacturing
purposes.
Manufacturing Cost and Cost of Production are used interchangeably.
4.10 Manufacturing Overheads: Indirect costs involved in the manufacturing process
The terms Manufacturing Overheads, Factory Overheads, Works Overheads and
Production Overheads have the same meaning and are used interchangeably.
Manufacturing overheads shall include administration cost relating to production,
factory, works or manufacturing and depot.
 Manufacturing Cost
Manufacturing Overheads shall be classified on the basis of behaviour as Variable
Manufacturing Overheads and Fixed Manufacturing Overheads.
Variable Manufacturing Overheads comprise of expenses which vary in proportion to
the change in volume of production. For example, cost of utilities etc.
Fixed Manufacturing overheads comprise of expenses which does not change with
the change in volume of production. For example, salaries, rent, repairs & maintenance,
etc.
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4.11 Material Consumed: Material Consumed includes materials directly identified

for production of excisable goods such as:
(a) Indigenous materials
(b) Imported materials
(c) Bought out items
(d) Self-manufactured items
(e) Process materials and other items
(f) Materials received free of cost or at concessional value from the buyer
(g) Accessories, on which cenvat credit is admissible, and which are cleared
along with the final product
(h) goods used for providing free warranty for excisable goods
Cost of material consumed consists of cost of material, duties and taxes, freight
inwards, insurance and other expenditure directly attributable to procurement.
Trade discount, rebates and other similar items are 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 entity are also deducted.
4.12 Normal Capacity is the production achieved or achievable on an average over a
period or season under normal circumstances taking into account the loss of
capacity resulting from planned maintenance.
Capacity may be determined in terms of units of production or equivalent machine or
man hours.
4.13 Packing Material Cost: The cost of material of any nature used for the purpose
of packing of excisable good.
4.14 Quality Control Cost: The quality control cost is the expenses incurred relating
to quality control activities for adhering to quality standard. These expenses
include salaries & wages relating to employees engaged in quality control activity
and other related expenses.
4.15 Repairs & Maintenance Cost: Cost of all activities which have the objective of
maintaining or restoring an asset in or to a state in which it can perform its
required function at intended capacity and efficiency.
4.16 Research and Development Cost: The research and development cost incurred
for development and improvement of the process or the excisable good.
4.17 Royalty: Royalty is compensation/periodic payments for the use of asset (tangible
 Manufacturing Cost

and/or intangible) to the owner for use of his asset in the production/manufacture,
selling and distribution by an entity.
4.18 Scrap: Discarded material having some value in few cases and which is usually
either disposed of without further treatment (other than reclamation and
handling) or reintroduced into the production process.
4.19 Technical Know-how Fee: Technical Know-how Fee is a lump sum or periodical
amount payable to provider of Technical Know-how in the form of design,
drawings, training of personnel, or practical knowledge, skills or experience.
4.20 Waste and Spoilage:
4.20.1 Waste: Material lost during production or storage due to various factors such
as evaporation, chemical reaction, contamination, unrecoverable residue,
shrinkage, etc., and discarded material which may or may not have any value.
4.20.2 Spoilage: Production that does not meet with dimensional or quality standards
in such a way that it cannot be rectified economically and is sold for a disposal
value. Net Spoilage is the difference between costs accumulated up to the point
of rejection and the salvage value.

5. Principles of Measurement
5.1 Manufacturing cost for each excisable good shall be measured separately.
5.2 Manufacturing cost of each excisable good shall be the aggregate of direct and
indirect cost relating to manufacturing activity.
5.3 Material cost shall be measured separately for each type of material, that is, for
indigenous material, imported material, bought out components and process
materials, self-manufactured items, accessories for each type of excisable good.
Cost of Inputs received free of cost or at concessional value from the buyer of the
excisable good shall be considered for determination of manufacturing cost.
5.4 The material cost of normal scrap/defectives which are rejects shall be included
in the material cost of excisable goods manufactured. The material cost of actual
scrap/ defectives, not exceeding the normal quantity shall be adjusted in the
material cost of good production. Realized or realizable value of scrap or waste
shall be deducted for determination of manufacturing cost. Material Cost of
abnormal scrap /defectives should not be included in material cost but treated
as loss after deducting the realisable value of such scrap / defectives.
5.5 Employee Cost for each excisable good shall be measured separately.
5.6. The cost of utilities consumed for manufacturing of excisable good shall be
measured for each type of utility.
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5.7 Packing material cost used for each type of excisable good shall be measured
separately.
If excisable goods are transferred/dispatched duly packed, the cost of such packing
shall include cost of all types of packing in which the excisable goods are removed
from the place of removal.
5.8 The Direct Expenses for manufacturing of excisable goods shall be measured
for each excisable good separately.
5.9 Repairs and maintenance cost for manufacturing of excisable goods shall be
measured for each excisable good separately.
5.10 Depreciation and Amortisation cost for manufacturing of excisable goods shall
be measured for each excisable good separately.
5.11 Research & Development cost for manufacturing of excisable goods shall be
measured for each excisable good separately.
5.12 Cost incurred for manufacturing of excisable goods after split-off point shall be
measured for each Joint/By-Product.
In case the manufacturing process generates scrap or waste, realized or realizable
value net of cost of disposal, of such scrap and waste shall be deducted from the cost
of Joint Product.
5.13 Royalty and Technical Know-how Fee for manufacturing of excisable goods paid
or incurred in lump-sum or which are in the nature of ‘one-time’ payment, shall
be amortised on the basis of the estimated output or benefit to be derived from
the related Technical Know how.
Royalty paid on sales shall not form part of manufacturing cost of excisable good.
5.14 Quality Control cost incurred in-house for manufacturing of excisable goods
shall be the aggregate of the cost of resources used in the Quality Control
activities in relation to each excisable good. The cost of resources procured
from outside shall be determined at invoice or agreed price including duties
and taxes, and other expenditure directly attributable thereto net of discounts,
taxes and duties refundable or to be credited as input credit.
5.15 Manufacturing Overheads for excisable goods representing procurement of
resources shall be determined at invoice or agreed price including duties and
taxes, and other expenditure directly attributable thereto net of discounts; taxes
and duties refundable or to be credited as input credit.
Manufacturing Overheads other than those referred to above shall be determined on
the basis of cost incurred in connection therewith.
 Manufacturing Cost

5.16 Any abnormal cost, where it is material and quantifiable, shall not form part of
the manufacturing cost of excisable good.
5.17 Interest and other Finance costs are not part of manufacturing cost of excisable
good.
5.18 Manufacturing cost of excisable good shall include cost of inputs received free
of cost or at concessional value from the buyer of excisable good and
amortisation cost of free tools, pattern, dies, drawings, blue prints, technical
maps, charts, engineering, development, art work, design work, plans, sketches,
and the like necessary for production of excisable good. It shall also include
cost of rework, reconditioning, retro-fitment, Manufacturing Overheads and other
costs allocable to such activity, adjustment for stock of work-in-process and
recoveries from sales of scrap and wastages and the like necessary for
production of excisable good.
In case any input material, whether of direct or indirect nature, including packing
material, is supplied free of cost or at concessional value by the buyer of the excisable
good, the cost of such material shall be included in the manufacturing cost.
For example: Amortisation Cost of Moulds, Tools, Dies & Patterns and Cost of Packing
Material etc. received free of cost or at concessional value from the buyer of excisable
good shall be included in manufacturing cost.
5.19 Any Subsidy/Grant/Incentive or any such payment received/receivable, from
other entity, other than the buyer with respect to any manufacturing cost of
excisable good shall be deducted for ascertainment of the manufacturing cost
of excisable good to which such amounts are related.
5.20 The manufacturing cost of excisable good shall be determined based on the
normal capacity or actual capacity utilization whichever is higher and
unabsorbed cost, if any, shall be treated as abnormal cost.
5.21 Fines, penalties, damages, demurrage and similar levies paid to statutory
authorities or other third parties shall not form part of the manufacturing cost of
excisable good.
5.22 The forex component of imported material or other element of cost shall be
converted at the rate on the date of the transaction. Any subsequent change in
the exchange rate till payment or otherwise shall not form part of manufacturing
cost of excisable good.
5.23 Credits/recoveries relating to the manufacturing cost, which are material and
quantifiable, shall be deducted from the total manufacturing cost to arrive at the
net manufacturing cost of excisable good.
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5.24 Work in process/progress stock shall be measured at cost computed for different
stages of completion.
Stock of work-in-process/progress shall be valued at cost on the basis of stages of
completion as per cost accounting principles. Opening and closing stock of work-in-
process/progress shall be adjusted for computation of manufacturing cost of an
excisable good.

6. Assignment of Cost
6.1 While assigning various elements of manufacturing cost of excisable goods,
traceability to an excisable good in an economically feasible manner shall be
the guiding principle. The cost which can be traced directly to each excisable
good shall be directly assigned.
6.2 Assignment of manufacturing cost of excisable goods, which are not directly
traceable to the excisable good shall be based on either of the following two
principles;
6.2.1 Cause and Effect – Cause is the process or operation or activity and effect is
the incurrence of cost.
6.2.2 Benefits received – to be apportioned to various cost objects in proportion to
the benefits received by them.
6.3 The variable manufacturing/production overheads shall be absorbed based on
actual production.
6.4 The fixed manufacturing/production overheads and other similar item of fixed
costs such as quality control cost, research and development costs and
administrative overheads relating to manufacturing shall be absorbed in the
manufacturing cost on the basis of the normal capacity or actual capacity
utilization of the plant, whichever is higher.
6.5 In case a production process results in more than one product being produced
simultaneously, treatment of joint products and by-products shall be as under:
6.5.1 In case joint products are produced, joint costs are allocated between the
products on a rational and consistent basis.
6.5.2 In case by-products are produced, the net realisable value of by-products is
credited to the manufacturing cost of the main product.
6.6 Miscellaneous Income relating to production/manufacture shall be adjusted in
the determination of manufacturing cost.
For example, income from sale of empty containers used for procurement of raw
material shall be deducted in determination of manufacturing cost.
 Manufacturing Cost

7 Presentation
7.1 Cost statement as per Appendix 1 to this standard or as near thereto shall present
following information:
7.1.1 Actual capacity utilization in absolute terms and as a percentage of normal
capacity.
7.1.2 Cost information relating to various elements of Cost shall be presented
separately.

8. Disclosures
8.1 Disclosure shall be made only where material, significant and quantifiable.
8.2 If there is any change in cost accounting principles and practices during the
period under review which may materially affect the manufacturing cost of
excisable good in terms of comparability with previous period(s), the same shall
be disclosed.

9. Effective date
This Cost Accounting Standard shall be effective from the period commencing on or
after 1st April 2015 for being applied for the preparation and certification of Cost
Accounting Statements for excisable goods.
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Appendix 1
Cost Statement showing Manufacturing Cost of (Name of excisable good) for the period:
Name of the Manufacturer
Address of the Manufacturer
Excise Registration Number
Name of the unit
Address of the unit
Central Excise Tariff Heading
A Quantitative Information Unit Quantity
1 Normal/Installed Capacity
2 Production
3 Captive Consumption
4 Production as %age of Normal/Installed Capacity

B Cost Information Unit Quantity Rate Amount Cost per Unit

Materials (specify)
1 A.
B.
C.
D......
Total Materials Consumed
2 Process Materials
3 Utilities
4 Direct Employee Cost
5 Direct Expenses
6 Consumable Stores and Spares
7 Repairs and Maintenance Cost
8 Quality Control Cost
9 Research & Development Cost
10 Technical Know-how Fee/Royalty, if any
11 Depreciation/Amortization
12 Other Manufacturing Overheads
 Manufacturing Cost

B Cost Information Unit Quantity Rate Amount Cost per Unit

13 Total (1 to 12)
14 Add/Less Work-in-Progress Adjustments
15 Less Credit for Recoveries, if any
16 Packing Cost
17 Cost of Inputs Received Free or at
concessional value from the buyer
of the excisable good
18 Manufacturing Cost (13 to 17)

Date: Seal & Signature of the Company’s Authorised Representative

I/We have verified above data on test check basis with reference to the books of account, cost accounting
records and other records. Based on the information and explanations given to me/us, and on the basis
of generally accepted cost accounting principles and practices and Cost Accounting Standards followed
by the entity, I/we certify that the above cost data reflects true and fair view of the manufacturing cost of
the above excisable good.

Date: Seal & Signature of Cost Accountant

Place: Membership No.: Firm Regn. No.:

Note: Separate Cost Statement(s) shall be prepared for each excisable good