Devarajan Swaminathan & Co.

Cost Accountants - aligning costs with strategies

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GACAP, CAS and Cost Information Presentation

GACAP, Guidance note for Maintaining Cost Accounting Records and Cost Information Presentation:
Please note that "costs", "expenses" , "losses" , "expenditure" have NOT been used interchangeably. They all have distinct conotations.
1. The Term "Cost" needs to be redefined to include post production costs. The present cost definition is limited to production. A suggested definition of "cost"
A cost is a measurement, in monetary terms, of the amount of resources used for the purpose of making goods available for sale and includes resources used post sales for honouring pre sales contract (e.g warranty) or resources consumed for the purpose of rendering of services.
2. GACAP and CAS which provides guidance for inclusion of cost elements would therefore adhere to the above definition. In this regard it would make little sense to include the following expenses/losses under "costs".
i) Bad Debts (bad debt is a loss and not an expense/cost) - can substantiate if asked. Bad Debt must only reflect in the Cost-Financial Reconciliation Statement.
ii) legal expenses incurred for recovering bad debts cannot come as a selling costs but to be shown under business sustenance expenses.

3. Period Costs are expenses incurred for Business Sustenance Purposes. Therefore every product vertical has to make some contribution for absorbing period costs. This could be on the basis of sales value or anyother.
4. Similarly every product vertical has to make some contribution towards CSR Expenses incurred by the Company for the Company as a whole.
5. Interest and finance charges, as suggested by the GACAP to be shown as a part of total cost of sales, should in my opinion, not be shown under the Total Cost of Sales but the same need to be shown as a spearate line item in the cost information presentation.
6. It would make a lot of sense to include imputed risk cost as a separate line item in the cost information presentation. For this we would need a GACAP to provide guidance for recognition, measurement and discloure of imputed risk costs.
7. It is therefore imperative that cost information presentation relfect the above different nature of costs, expenses incurred/imputed. A format is suggested below. 
Cost Information Presentation
Less: Costs directly attributable to the Product
Direct Costs
Direct Material
Direct Labour
Direct Expenses
Total Direct Costs
Indirect Costs
Production Overheads
Administration Overheads
Selling Overheads
Distribution Overheads
Total Indirect Costs
Total Operations Costs
(Direct + Indirect)
Contribution before Interest
(Sales minus total operations costs)

Interest and finance expense
Contribution Before Business Sustenance Expenses
Less: Apportioned Business Sustenance Expenses
(Period costs not directly attributable to the Products)
Administration expenses
Selling expenses
Distribution expenses
Interest and finance expenses
Contibution before CSR Expenses
CSR Expenses
Total CSR Expenses
Net Contribution
Less : Imputed Risk Costs

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