From Cost Accounting Standards Board
Communiqué From Chairman-CASB.
Final Packing Material Cost (CAS-9).
Final Direct Expenses (CAS-10).
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Cost Accounting Standards Board of ICWAI
(CAS 9)
COST ACCOUNTING STANDARD ON PACKING MATERIAL COST
The following is the COST ACCOUNTING STANDARD - (CAS - 9) issued by the Council of The
Institute of Cost and Works Accountants of India on “PACKING MATERIAL COST”, for
comments. 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 Packing
Material Cost.
1.2 This standard deals with the principles and methods of classification, measurement
and assignment of Packing Material Cost, for determination of the cost of product, and
the presentation and disclosure in cost statements.
1.3 Packing Materials for the purpose of this standard are classified into primary and
secondary packing materials.
2. Objective
The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the packing material cost with reasonable accuracy.
3. Scope
This standard should be applied to cost statements, which require classification,
measurement, assignment, presentation and disclosure of Packing Material Cost
including those requiring attestation.
4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1 Abnormal 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.1
1 Adapted from CAS 1 Para 6.5.19
Cost Accounting Standards Board of ICWAI
For example: the cost of packing material which is rejected after issue due to abnormal
causes such as misprinting, use of material of wrong specification etc. (net of realisable
value) may be treated as abnormal cost.
4.2 Administrative Overheads: Cost of all activities relating to general management
and administration of an organisation. Administrative overheads shall exclude any
overhead relating to production, operations and marketing.
4.3 Cost Object: This includes a product, service, cost centre, activity, sub-activity,
project, contract, customer or distribution channel or any other unit in relation to which
costs are ascertained.2
4.4 Direct Employee Cost: The cost of employees which can be attributed to a Cost
Object in an economically feasible way.3
4.5 Direct Expenses: Expenses relating to manufacture of a product or rendering a
service, which can be identified or linked with the cost object other than direct material
or direct employee cost4. Examples of Direct Expenses are royalties charged on
production, job charges, hire charges for use of specific equipment for a specific job, cost
of special designs or drawings for a job, software services specifically required for a job,
travelling Expenses for a specific job.
4.6 Direct Materials: Materials the costs of which can be attributed to a cost object.5
4.7 Distribution Overheads: Distribution overheads, also known as Distribution Cost,
are the costs incurred in handling a product from the time it is ready for despatch until
it reaches the ultimate consumer.6
For example:
• Secondary packing
• Transportation cost
• Warehousing cost
• Cost of delivering the products to customers etc.
2 Adapted from CIMA Terminology
3 Adapted from CAS 7 Para 4.6
4 Adapted from CAS 1 Para 6.2.6 and also proposed in the CAS on Direct Expenses
5 Adapted from CAS 6 Para 4.6.1
6 Adapted from CAS 1 Para 6.3.9
Cost Accounting Standards Board of ICWAI
• Clearing and forwarding charges
• Cost of mending or replacing packing materials at distribution point.
4.8 Finance Costs: Costs incurred by an enterprise in connection with the borrowing of
funds. This will include interest and commitment charges on bank borrowings, other
short term and long term borrowings, amortisation of discounts or premium related to
borrowings, amortisation of ancillary cost incurred in connection with the arrangements
of borrowings, finance charges in respect of finance leases, other similar arrangements
and exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to the interest costs7. The terms Finance costs and Borrowing
costs are used interchangeably.
4.9 Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed
for any purpose.8
For example: packing material supplied by the customer.
4.10 Marketing overheads: Marketing Overheads comprises selling overheads and
distribution overheads.
4.11 Packing Materials: Materials used to hold, identify, describe, store, protect,
display, transport, promote and make the product marketable and communicate with
the consumer.
4.11.1 Defectives: Packing materials that do not meet quality standards. This may
include reworks or rejects.9
4.11.1.1 Reworks: Defectives which can be brought up to the standards by putting
in additional resources.10
Rework includes repairs, reconditioning and refurbishing.
4.11.1.2 Rejects: Defectives which can not meet the quality standards even after
putting in additional resources.11
7 Adapted from CIMA Terminology
8 Adapted from CAS 1 Para 6.5.13
9 Adapted from CAS 6 Para 4.4
10 Adapted from CAS 6 Para 4.4.1
11 Adapted from CAS 6 Para 4.4.2
Cost Accounting Standards Board of ICWAI
Rejects may be disposed off as waste or sold for salvage value or recycled in the
production process.
4.11.2 Packing Material Cost: The cost of material of any nature used for the
purpose of packing of a product.
4.11.3 Primary Packing Material: Packing material which is essential to hold the
product and bring it to a condition in which it can be used by or sold to a customer.
For example:
• Pharmaceutical industry: Insertions related to product, Foils for strips of
tablets/capsules, vials.
• Industrial gases: Cylinders / bottles used for filling the gaseous products
• Confectionary Industry: Butter paper and wrappers.
4.11.4 Reusable Packing Material: Packing materials that are used more than once
to pack the product.
4.11.5 Scrap: Discarded packing material having some value in a few cases and
which is usually either disposed of without further treatment or reintroduced into
the production of packing material.12
4.11.6 Secondary Packing Material: Packing material that enables to store,
transport, inform the customer, promote and otherwise make the product
marketable.
For example:
• Pharmaceutical industry: Cartons used for holding strips of tablets and card
board boxes used for holding cartons.
• Textile industry: Card board boxes used for holding cones on which yarn is
woven.
• Confectionary Industry: Jars for holding wrapped chocolates, Cartons containing
packs of biscuits.
4.12 Packing Material Development Cost: Cost of evaluation of packing material such as
pilot test, field test, consumer research, feed back, and final evaluation cost.
12 Adapted from Para 4.9 of CAS 6
Cost Accounting Standards Board of ICWAI
4.13 Production overheads: Indirect costs involved in the production process or in
rendering service13.
The terms Production Overheads, Factory Overheads, Works Overheads and
Manufacturing Overheads denote the same meaning and are used interchangeably.
Production overheads shall include administration cost relating to production, factory,
works or manufacturing.
4.14 Selling Overheads: Selling Overheads, also known as Selling Costs, are the
expenses related to sale of products and include all Indirect Expenses in sales
management for the organization.14
4.15 Standard Cost: A predetermined cost of resource inputs for the cost object
computed with reference to set of technical specifications and efficient operating
conditions.15
Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.
5. Principles of Measurement
5.1 Principle of valuation of receipts of packing material:
5.1.1 The packing material receipts should be valued at purchase price including
duties and taxes, freight inwards, insurance, and other expenditure directly
attributable to procurement (net of trade discounts, rebates, taxes and duties
refundable or to be credited) that can be quantified at the time of acquisition.
Examples of taxes and duties to be deducted from cost are CENVAT credits, credit for
countervailing customs duty, sales tax set off/ vat credits and other similar items of
credit recovered/ recoverable.
5.1.2 Finance costs directly incurred in connection with the acquisition of Packing
Material shall not form part of Packing Material Cost.
13 Adapted from CAS-1 Para 6.3.3 and 6.3.4
14 Adapted from CAS 1 Para 6.3.7
15 Adapted from CAS 6 Para 4.15
Cost Accounting Standards Board of ICWAI
5.1.3 Self manufactured packing materials shall be valued including direct material
cost, direct employee cost, direct expenses, job charges, factory overheads including
share of administrative overheads comprising factory management and
administration and share of research and development cost incurred for
development and improvement of existing process or product.
5.1.4 The valuation of captive consumption of packing materials shall be in
accordance with paragraph 5 of Cost Accounting Standard 4.
5.1.5 Normal loss or spoilage of packing material prior to receipt in the factory shall
be absorbed in the cost of balance materials net of amounts recoverable from
suppliers, insurers, carriers or recoveries from disposal.
5.1.6 The forex component of imported packing material cost shall be converted at
the rate on the date of the transaction. Any subsequent change in the exchange rate
till payment or otherwise shall not form part of the packing material cost.
Explanation: The date on which a transaction (whether for goods or services) is
recognised in accounting in conformity with generally accepted accounting principles.
5.1.7 Any demurrage, detention charges or penalty levied by the transport agency or
any authority shall not form part of the cost of packing materials.
5.1.8 Any Subsidy/Grant/Incentive or any such payment received/receivable with
respect to packing material shall be reduced for ascertainment of the cost to which
such amounts are related.
5.2. Principle of valuation of issue of packing material
Issues shall be valued using appropriate assumptions on cost flow.
For example: First In First Out, Last In First Out, Weighted Average Rate.
The method of valuation shall be followed on a consistent basis.
5.3 Wherever, packing material costs include transportation costs, determination of
costs of transportation shall be governed by CAS 5 – Cost Accounting Standard on
determination of average (equalized) cost of transportation.
Cost Accounting Standards Board of ICWAI
5.4 Packing Material Costs shall not include imputed costs. However in case of Cost of
Production of Excisable Goods for Captive Consumption the computation of cost shall be
as per CAS 4.
5.5 Where packing materials are accounted at standard cost, the price variances related
to such materials shall be treated as part of packing material cost and the portion of
usage variances due to normal reasons shall be treated as part of packing material cost.
Usage variances due to abnormal reasons shall be treated as part of abnormal cost.
5.6 The normal loss arising from the issue or consumption of packing materials shall be
included in the packing materials cost.
5.7 Any abnormal cost where it is material and quantifiable shall be excluded from the
packing material cost.
5.8 The credits/recoveries in the nature of normal scrap arising from packing materials
if any, should be deducted from the total cost of packing materials to arrive at the net
cost of packing materials.
6. Assignment of Cost
6.1 Assignment of packing material costs to cost objects: Packing material costs shall be
directly traced to a cost object to the extent it is economically feasible.
6.2 Where the packing material costs are not directly traceable to the cost object, these
may be assigned on the basis of quantity consumed or similar measures like technical
estimates.
6.3 The packing material cost of reusable packing shall be assigned to the cost object
taking into account the number of times or the period over which it is expected to be
reused.
6.4 Cost of primary packing materials shall form part of the cost of production.
6.5 Cost of secondary packing materials shall form part of distribution overheads.
Cost Accounting Standards Board of ICWAI
7. Presentation
7.1 Packing Materials shall be classified as primary and secondary and within this
classification as purchased – indigenous, imported and self manufactured.
7.2 Where separate cost statements are prepared for packing costs, the cost of packing
materials consumed shall be presented in terms of type of packing in which the
materials are used (For example; Bale, Bag, Carton, Pallet). Such statements shall also
include cost and quantitative information, wherever it is found material and
quantifiable.
8. Disclosures
8.1 The cost statements shall disclose the following:
1. The basis of valuation of Packing Materials.
2. Where Packing Materials Cost is disclosed at standard cost, the price and usage
variances.
3. The cost and price of Packing Materials received from/supplied to related
parties16.
4. Packing Materials cost incurred in foreign exchange.
5. Any Subsidy/Grant/Incentive and any such payment reduced from Packing
Materials Costs.
6. Credits/recoveries relating to the Packing Materials Costs.
7. Any abnormal cost excluded from Packing Materials Costs.
8. Penalties and damages paid etc. excluded from Packing Materials Costs.
8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Packing Materials Costs during the period covered
by the cost statement which has a material effect on the Packing Materials Cost shall
be disclosed. Where the effect of such change is not ascertainable wholly or partly the
fact shall be indicated.
8.3 Disclosures shall be made only where material, significant and quantifiable.
8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.
16 Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
Cost Accounting Standards Board of ICWAI
Page 1 of 6
(CAS-10)
COST ACCOUNTING STANDARD ON DIRECT EXPENSES
The following is the COST ACCOUNTING STANDARD – 10 (CAS-10) issued by the Council of
The Institute of Cost and Works Accountants of India on “DIRECT EXPENSES”, for
comments. 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 Direct
Expenses.
1.2 This standard deals with the principles and methods of classification, measurement
and assignment of Direct Expenses, for determination of the cost of product or service,
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 Direct Expenses with reasonable accuracy.
3. Scope
This standard should be applied to cost statements, which require classification,
measurement, assignment, presentation and disclosure of Direct Expenses including
those requiring attestation.
4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1 Abnormal 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.1
1 Adapted from CAS 1 paragraph 6.5.19
Cost Accounting Standards Board of ICWAI
Page 2 of 6
4.2 Cost Object: This includes a product, service, cost centre, activity, sub-activity,
project, contract, customer or distribution channel or any other unit in relation to
which costs are ascertained.2
4.3 Direct Employee Cost: The cost of employees which can be attributed to a cost
object in an economically feasible way.3
4.4 Direct Expenses: Expenses relating to manufacture of a product or rendering a
service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost4. Examples of Direct Expenses are royalties
charged on production, job charges, hire charges for use of specific equipment for a
specific job, cost of special designs or drawings for a job, software services specifically
required for a job, travelling Expenses for a specific job.
4.5 Direct Material Cost: The cost of material which can be attributed to a cost object
in an economically feasible way5.
4.6 Finance Costs: Costs incurred by an enterprise in connection with the borrowing of
funds. This will include interest and commitment charges on bank borrowings, other
short term and long term borrowings, amortisation of discounts or premium related to
borrowings, amortisation of ancillary cost incurred in connection with the arrangements
of borrowings, finance charges in respect of finance leases, other similar arrangements
and exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs6. The terms Finance costs and
Borrowing costs are used interchangeably.
4.7 Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed
for any purpose.7
2 Adapted from CIMA Terminology
3 Adapted from CAS 1 paragraph 6.2.4 (Direct labour cost)
4 Adapted from CAS 1 paragraph 6.2.6
5 Adapted from CAS 1-6.2.3
6 Adapted from CIMA Terminology
7 Adapted from CAS 1 paragraph 6.5.13
Cost Accounting Standards Board of ICWAI
Page 3 of 6
4.8 Overheads: Overheads comprise of indirect materials, indirect employee costs and
indirect expenses which are not directly identifiable or allocable to a cost object.8
4.9 Standard Cost: A predetermined cost of resource inputs for the cost object
computed with reference to set of technical specifications and efficient operating
conditions.
Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.
5. Principles of Measurement:
5.1 Identification of Direct Expenses shall be based on traceability in an economically
feasible manner.
5.2.1 Direct expenses incurred for the use of bought out resources shall be determined
at invoice or agreed price including duties and taxes, and other expenditure directly
attributable thereto net of trade discounts, rebates, taxes and duties refundable or to
be credited.
5.2.2 Direct expenses other than those referred to in paragraph 5.2.1 shall be
determined on the basis of amount incurred in connection therewith.
Examples: in case of dies and tools produced internally, the cost of such dies and tools
will include direct material cost, direct employee cost, direct expenses, factory
overheads including share of administrative overheads relating to production comprising
factory management and administration.
In the case of research and development cost, the amount traceable to the cost object
for development and improvement of the process for the existing product shall be
included in Direct Expenses.
8 Adapted from CAS 3 paragraph 4.1
Cost Accounting Standards Board of ICWAI
Page 4 of 6
5.2.3 Direct Expenses 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 such direct expenses.
Examples: Royalty or Technical know-how fees, or drawing designing fees, are paid for
which the benefit is ensued in the future period. In such case, the production / service
volumes shall be estimated for the effective period and based on volume achieved
during the Cost Accounting period, the charge for amortisation be determined.
5.3 If an item of Direct Expenses does not meet the test of materiality, it can be treated
as part of overheads.
5.4 Finance costs incurred in connection with the self generated or procured resources
shall not form part of Direct Expenses.
5.5 Direct Expenses shall not include imputed costs. In case of goods produced for
captive consumption, treatment of imputed cost shall be in accordance with Cost
Accounting Standard – 4 (CAS-4).
5.6 Where direct expenses are accounted at standard cost, variances due to normal
reasons shall be treated as part of the Direct Expenses. Variances due to abnormal
reasons shall not form part of the Direct Expenses.
5.7 Any Subsidy/Grant/Incentive or any such payment received/receivable with
respect to any Direct Expenses shall be reduced for ascertainment of the cost of the
cost object to which such amounts are related.
5.8 Any abnormal portion of the direct expenses where it is material and quantifiable
shall not form part of the Direct Expenses.
5.9 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the Direct Expenses.
Cost Accounting Standards Board of ICWAI
Page 5 of 6
5.10 Credits/ recoveries relating to the Direct Expenses, material and quantifiable,
shall be deducted to arrive at the net Direct Expenses.
5.11 Any change in the cost accounting principles applied for the measurement of the
Direct Expenses should be made only if, it is required by law or for compliance with the
requirements of a cost accounting standard, or a change would result in a more
appropriate preparation or presentation of cost statements of an organisation.
6. Assignment of costs
6.1 Direct Expenses that are directly traceable to the cost object shall be assigned to
that cost object.
7. Presentation
7.1 Direct Expenses, if material, shall be presented as a separate cost head with
suitable classification. E.g.
• Subcontract charges
• Royalty on production
8. Disclosures
8.1 The cost statements shall disclose the following:
1. The basis of distribution of Direct Expenses to the cost objects/ cost units.
2. Quantity and rates of items of Direct Expenses, as applicable.
3. Where Direct Expenses are accounted at standard cost, the price and usage
variances.
4. Direct expenses representing procurement of resources and expenses incurred
in connection with resources generated.
5. Direct Expenses paid/ payable to related parties9.
6. Direct Expenses incurred in foreign exchange.
7. Any Subsidy/Grant/Incentive and any such payment reduced from Direct
Expenses.
8. Credits/recoveries relating to the Direct Expenses.
9. Any abnormal portion of the Direct Expenses.
10. Penalties and damages excluded from the Direct Expenses
9 Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
Cost Accounting Standards Board of ICWAI
Page 6 of 6
8.2 Disclosures shall be made only where material, significant and quantifiable.
8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.
8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Direct Expenses during the period covered by the
cost statement which has a material effect on the Direct Expenses. Where the effect of
such change is not ascertainable wholly or partly the fact shall be indicated.
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