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

In-depth Analysis of CAS 6 and 7– Treatment of Product Cost & Labour Cost, The major material of costing is everything about how to compute the cost of various inputs. Two of the most essential expenses are material expense & labour cost. Discover complete information for Cost Accounting Requirement 6– Product Cost and likewise discover all details for Cost Accounting Standard 7– Staff Member Cost. Let us do a deep research study on each of these.

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

• CMA Structure Outcome
• CMA Outcome
• CMA Inter Outcome

Cost Accounting Requirement 6– Material Cost

Product cost is the considerable constituent of the overall cost of any item. For manufacturing sector the material expenses are of greatest significance. The analysis and control on Material Cost is extremely essential.

• The standard CAS 6 recommends principles and techniques of identifying the Product Expense.
• Product for the purpose of this basic includes raw materials, procedure materials, ingredients, made/ bought out parts, sub– assemblies, accessories, semi ended up products, consumable shops, spares and other indirect products.
• However, this requirement does not handle Packaging Products as a separate standard is being released on the subject by the Institute.
• The Standard handle the following concerns.
• Principles of Assessment of receipt and concern of materials.
• Project of material expense to cost items.
• This standard targets to bring uniformity and consistency in the principles and approaches of identifying the material cost with a reasonable degree of precision.
• This standard should be applied to cost declarations which need classification, measurement, task, presentation and disclosure of material costs consisting of those requiring attestation.
• Quantity and rates of significant items (which forms a minimum of 5% of the total expense of products) will be disclosed.
• Disclosures might be made in the body of the Expense statement or as a foot note or as a different schedule to the main statement.
• This basic shall apply to all Cost Statements prepared on or after 1st April 2010.

Must Check Out– Weighted Average Cost of Capital

Expense Accounting Basic 7– Employee Expense

Labour is an important component of cost and for overall expense control and expense decrease, Labour Cost is of critical importance. Labour Expense is also called as Employee Cost. For control and reduction of Labour Cost, it is necessary to calculate the Labour Expense in a scientific way and for this reason there ought to be appropriate systems and procedures and documentation, which will help computation of Labour Cost in a clinical way. It ought to be kept in mind that Labour is not like material as there is a human element associated with it. There need to be a thorough research study of all related elements of Labour Expense and then only calculation and control over the exact same will be possible. Attention ought to likewise be paid to the productivity aspect. Low performance lead to higher Labour Cost per unit while higher efficiency will minimize the Labour Cost per system.

• This standard deals with the concepts and approaches to classify, measure and designate employee cost to determine the cost of an item or a service and also about its disclosure in the cost statements.
• In order to bring harmony and consistency in the concepts and approaches of figuring out the worker cost with a sensible degree of precision, this requirement has actually been established by The Institute.
• This requirement must be applied to cost statements which need category, measurement, assignment, presentation and disclosure of material expenses consisting of those requiring attestation.
• Staff member cost will consist of payments made in cash or kind.
• Direct employee expense need to exist as a different expense head while indirect worker expense must be presented as a part of overheads in the cost declarations.
• Disclosures might be made in the body of the Cost statement or as a footnote or as a separate schedule to the primary declaration.

So, when we are on to preparing an Expense Statement, we must follow these Expense Accounting Standards which shows the treatment of these 2 significant expenses forming part of the general expenses any company, that are, material expense & labour cost.

Should Read– Success Index (PI) Detailed Analysis

This will make sure harmony of the different Cost Statements prepared for different entities & will also help in showing a real & fair photo of the cost allocation in any company.