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CAS-3 COST ACCOUNTING STANDARD ON “PRODUCTION AND OPERATION OVERHEADS”
This standard deals with the principles and methods of classification, measurement and assignment of Production or Operation Overheads, for determination of the cost of goods produced or services provided and for the presentation and disclosure in cost statements.
Objective
Principles
Procurement of Resources:
Shall be valued (a) invoice or agreed price including taxes and duties and all related expenses net of all credits.( trade discount, tax credits & rebates.cash discount is not deductible. )
In House Production & Operation Overheads Shall be valued at total of actual cost incurred for the activity.
1. Finance Cost, Abnormal Cost and Imputed Cost are not includable (except depreciation)
2. Credits with restrictions or Recoveries without restrictions shall be reduced.
3. Subsidy, Grant on Service or incentive received from Govt. or other Money back agencies shall be reduced
on products.
4. Fines, penalties, damages and similar levies paid or payable to statutory authorities or other third parties shall
not form part of the Production or Operation Overheads.
5. When Cost is measured in Standard rate any normal variance between standards & actual is part of cost.
General Principles
Assignment of production & operation overheads to a Cost object shall be based on the following:
(i) Cause & effect
Cause – Process or Operation
Effect – Incurrence of Cost
(ii) Benefits received
Actual benefits received from incurrence of cost.
Assignment of Cost
Absorption
Fixed production & operation overheads shall be absorbed based on normal capacity or actual capacity
whichever is higher.
Variable production & operation overheads shall be based on actual capacity utilisation.
Presentation
1. Production or Operation Overheads shall be presented as separate cost head.
2. If material, element wise and behaviour wise details of the Production or Operation Overheads shall be
presented.
3. Any under-absorption or over-absorption of Production or Operation Overheads shall be presented in the
reconciliation statement.
Disclosures
1. The basis of assignment of Production or Operation Overheads to the cost objects.
2. Production or Operation Overheads incurred in foreign exchange.
3. Production or Operation Overheads relating to resources received from or supplied to related parties
4. Any Subsidy, Grant, Incentive or any amount of similar nature received or receivable reduced from Production
or Operation Overheads.
5. Credits or recoveries relating to the Production or Operation Overheads.
6. Any abnormal cost not forming part of the Production or Operation Overheads.
7. Any unabsorbed Production or Operation Overheads.