Cost Accounting Standards (CAS 1 to CAS 24): formula sheet

Key formulas

Purpose in one line

CAS = uniform principles for classification + measurement + assignment + presentation + disclosure of cost

Use this as the opening line of any definition answer.

Chain of authority

ICMAI → CASB → CAS → company cost records → cost audit report

Shows how standards flow into cost records and audit under Section 148 of the Companies Act, 2013.

Typical layout of a CAS

Introduction → Objective → Scope → Definitions → Measurement → Assignment → Presentation → Disclosure → Effective date

Use it to describe the structure of a standard. Exact headings can vary slightly from one standard to another.

CAS 1 to CAS 6

1 Classification of Cost; 2 Capacity Determination; 3 Overheads; 4 Cost of Production for Captive Consumption; 5 Average (Equalized) Cost of Transportation; 6 Material Cost

Learn in numbered order.

CAS 7 to CAS 12

7 Employee Cost; 8 Cost of Utilities; 9 Packing Material Cost; 10 Direct Expenses; 11 Administrative Overheads; 12 Repairs and Maintenance Cost

Mnemonic idea: people, power, packing, direct expenses, admin, repairs.

CAS 13 to CAS 18

13 Cost of Service Cost Centre; 14 Pollution Control Cost; 15 Selling and Distribution Overheads; 16 Depreciation and Amortisation; 17 Interest and Financing Charges; 18 Research and Development Costs

Mostly support and finance-related costs.

CAS 19 to CAS 24

19 Joint Costs; 20 Royalty and Technical Know-how Fee; 21 Quality Control; 22 Manufacturing Cost; 23 Overburden Removal Cost; 24 Treatment of Revenue Grants and Subsidies

Specialised costs. Check the numbering against your ICMAI study material before the exam.

Material cost of purchase (CAS 6)

Purchase price + non-recoverable duties and taxes + freight inward + insurance + handling + other directly attributable costs − trade discounts, rebates and recoverable taxes

Add only costs of bringing the material to its location and condition. Leave out interest, abnormal loss and recoverable GST.

Cost per usable unit with normal loss

Total material cost ÷ (Quantity purchased − Normal loss quantity)

Normal loss is absorbed by the usable units, so the usable quantity (purchased less normal loss) is the divisor. Closing stock quantity plus abnormal loss quantity equals this usable quantity. Both are valued at this cost per usable unit, and the abnormal loss is charged to costing profit and loss.

Overhead absorption rate (CAS 3)

Budgeted production overheads of the centre ÷ Normal capacity base (hours, units or other base)

Use normal capacity for the fixed part. Under CAS 2, normal capacity is the average production or utilisation achieved or achievable over a period of years or seasons under normal circumstances, taking planned maintenance into account. Do not use a lower actual figure.

Under or over absorption

Overheads absorbed (rate × actual base) − Actual overheads incurred

A negative result is under-absorption. A positive result is over-absorption. For example, absorbed ₹4,80,000 less actual ₹5,90,000 = −₹1,10,000, which you report as under-absorption of ₹1,10,000. This total splits into the ₹1,20,000 cost of abnormal idle capacity, charged to costing profit and loss, and a ₹10,000 favourable spending variance. The favourable variance reduces the net charge to ₹1,10,000.

Cost of unused capacity

(Normal capacity − Actual capacity) × Fixed overhead rate, split into normal and abnormal parts

Only the abnormal part is excluded from product cost and charged to costing profit and loss. The normal part stays in product cost.

Direct versus indirect test

Traceable to the cost object in an economically feasible way = direct; otherwise = indirect (overhead)

This is the CAS 1 test for relationship with the cost object.

Employee cost in cost of production

Productive wages + normal idle time + normal overtime premium + other employee benefits (CAS 7)

Abnormal idle time and abnormal overtime are excluded and charged to the costing profit and loss account.

Cost of purchased utility

Purchase price + other costs to bring it into use − duties and taxes later recoverable (CAS 8)

Use net cost after recoverable taxes and trade discounts.

Cost of self-generated utility per unit

(Total cost of generation − abnormal loss cost) ÷ Usable units

Abnormal loss is valued at cost per unit of normal output (total cost ÷ normal output) and excluded. The cost of normal loss is not removed. It stays in the total and is absorbed by the usable units, which is why the divisor is usable units and not units generated.

Packing material split

Primary packing → product cost; secondary packing → distribution cost (CAS 9)

Primary packing is needed to hold or protect the product as sold. Secondary packing is for handling and transport.

Direct expenses (CAS 10)

Expenses traceable to a cost object, such as job-specific royalty, hire of equipment for a job, and sub-contract charges

Charge directly to that cost object. Exclude interest and abnormal items.

Administrative overheads (CAS 11)

Cost of general management not related to production or selling, assigned on a suitable basis

Examples: office salaries, audit fees, legal fees. Administrative cost relating to the factory belongs to production overheads.

Repairs and maintenance (CAS 12)

Normal repair and maintenance cost → assigned to the asset's cost object or the overhead pool; abnormal cost excluded

Where a cost clearly relates to one asset or product, treat it as direct for that asset or product.

Joint cost apportionment on sales value at split-off

Share of joint cost = Joint cost × (Sales value of the product ÷ Total sales value of joint products)

Use when products are saleable at split-off. Deduct by-product NRV from joint cost first.

Net realisable value (NRV) of a by-product

NRV = Selling price − Further processing cost − Selling and distribution cost

Credit it to the joint cost pool when by-product value is not significant.

Joint cost to be shared

Net joint cost = Total joint cost − NRV of by-products

Apportion this figure, not the gross joint cost, among the joint products.

Amortisation of capitalised development cost

Annual charge = Capitalised development cost ÷ Useful life (straight line)

Starts when the product or process is ready for use. Research cost is not capitalised.

Service cost centre assignment

Rate = Cost of service cost centre ÷ Total units of service; Charge to user = Rate × Units used

Choose a usage-based measure such as kWh, hours or headcount.

Joint cost apportionment (sales value at split-off)

Share of joint cost for a product = (Sales value of the product at split-off ÷ Total sales value of all joint products) × Net joint cost

Net joint cost = total joint cost minus net realisable value of by-products. Use this basis when the question gives sales values at split-off.

Net realisable value (NRV) basis

NRV at split-off = Final sales value − Further processing cost − Selling cost after split-off

Use when products need further processing after split-off. Apportion joint cost in the ratio of NRV.

Cost per good unit with normal loss

Cost per unit = (Total cost − Scrap value of normal loss) ÷ (Input units − Normal loss units)

Normal loss units carry no cost of their own. Their net cost is spread over expected good output.

Abnormal loss charge

Abnormal loss = Abnormal loss units × Cost per unit − Scrap value of those units

Written off to the costing profit and loss account. It is not included in product cost.

Royalty treatment rule

Royalty linked to production = production cost; royalty linked to sales = selling overhead

Decide by what triggers the payment, not by the name given in the question.

Grant treatment rule

Cost of the related cost object = Gross cost − Revenue grant or incentive linked to that cost

Only when there is reasonable assurance the grant will be received.

Quick revision

• CASB is the Cost Accounting Standards Board of ICMAI, which issues the CAS.
• CAS 1 is Classification of Cost and CAS 2 is Capacity Determination.
• CAS 3 is Production and Operation Overheads and CAS 6 is Material Cost.
• CAS 7 is Employee Cost, CAS 8 is Cost of Utilities and CAS 9 is Packing Material Cost.
• CAS 10 is Direct Expenses, CAS 11 is Administrative Overheads and CAS 12 is Repairs and Maintenance Cost.
• CAS 14 is Pollution Control Cost, CAS 15 is Selling and Distribution Overheads and CAS 16 is Depreciation and Amortisation.
• CAS 17 is Interest and Financing Charges and CAS 18 is Research and Development Costs.
• CAS 19 is Joint Costs and CAS 20 is Royalty and Technical Know-how Fee.
• CAS 21 is Quality Control, CAS 22 is Manufacturing Cost and CAS 23 is Overburden Removal Cost.
• CAS 24 is Treatment of Revenue Grants and Subsidies.
• For each standard, recall what is included, what is excluded and how credits are treated.
• Section A has 15 MCQs of 2 marks with no negative marking, so attempt every one.

Common mistakes

• Saying that CASB is a government body or that it is the same as the Accounting Standards Board. Fix: Remember: the CASB is formed by ICMAI and issues cost accounting standards. Financial accounting standards come from ICAI. Keep the two names apart.
• Mixing up standard numbers, for example giving CAS 6 for employee cost or CAS 7 for material cost. Fix: Learn in blocks of six. CAS 6 is Material Cost and CAS 7 is Employee Cost. Revise the block lists daily for a week.
• Adding GST that is eligible for input credit to material cost. Fix: Check whether credit is available. Recoverable tax is excluded. Only non-recoverable tax goes into cost.
• Deducting normal loss quantity but then charging normal loss separately as a loss. Fix: Spread normal loss over good units by dividing total cost by usable units. Only abnormal loss is a separate charge.
• Including abnormal idle time in the cost of production. Fix: Split idle time into normal and abnormal. Normal idle time stays in cost. Abnormal goes to the costing profit and loss account.
• Dividing utility cost by total units generated instead of usable units. Fix: Normal loss stays in the rate by reducing the units. Value abnormal loss at the normal rate and exclude it.
• Apportioning gross joint cost and ignoring by-product NRV. Fix: Write 'Net joint cost = Joint cost − by-product NRV' as your first line.
• Treating all R&D as capitalisable. Fix: Research is charged as incurred. Only development cost meeting the standard's conditions is carried forward and amortised.
• Adding abnormal loss into product cost. Fix: Only normal loss is absorbed by good units. Abnormal loss is valued separately and written off to the costing profit and loss account.
• Dividing total cost by input units instead of expected good output. Fix: Divide net cost by input minus normal loss units. Net cost means total cost minus scrap value of normal loss.

Exam tips

• Learn the CAS 1 to CAS 24 list in four blocks of six. MCQs often ask for the number or title of one standard.
• For short notes, write the CASB role in three bullets and the benefits in four or five bullets. Separate bullets earn separate marks.
• Always mention the link with cost records and cost audit under the Companies Act, 2013. It lifts a plain theory answer.
• In MCQs on a cost item, first identify the item and match it to its standard. Four-option questions usually have one option that sounds right but names a different standard.
• Do not guess dates or amounts of the board's history. Stick to roles, purposes and the standards list.
• In MCQs, watch for the trap items: recoverable GST, interest, abnormal loss and trade discount. Each changes the answer.
• For theory questions on CAS 1, list the bases of classification in a clear sequence and give one example for each. This earns step marks quickly.
• Show a neat cost statement for material cost, with each item on its own line and a total. Examiners award marks for the layout and for correct exclusions.