Name: Ajinkya Chinchole

Roll No: 84

Div: A

TY Bcom

Cost Accounting
Standards and
Cost Mgmt for
specific sectors
 Cost Accounting Standard 6 – Material Cost

Material cost is the significant constituent of the total cost of any product. It
constitutes 40% to 80% of the total cost. The percentages may differ from industry
to industry. But for manufacturing sector the material costs are of greatest
significance. Inventory also constitutes a vital element in the Working Capital. So,
it is treated as equivalent to cash. Therefore, the analysis and control on Material
Cost is very important.

 The standard CAS 6 prescribes principles and methods of determining the

Material Cost.
 Material for the purpose of this standard includes raw materials, process
materials, additives, manufactured / bought out components, sub –
assemblies, accessories, semi-finished goods, consumable stores, spares and
other indirect materials.
 However, this standard does not deal with Packing Materials as a separate
standard is being issued on the subject by the Institute.
 The Standard deals with the following issues.
 Principles of Valuation of receipt and issue of materials.
 Assignment of material cost to cost objects.
 This standard target to bring uniformity and consistency in the principles and
methods of determining the material cost with a reasonable degree of
accuracy.
 This standard should be applied to cost statements which require
classification, measurement, assignment, presentation and disclosure of
material costs including those requiring attestation.
 Quantity and rates of major items (which forms at least 5% of the total cost
of materials) shall be disclosed.
 Disclosures may be made in the body of the Cost statement or as a foot note
or as a separate schedule to the main statement.
 This standard shall be applicable to all Cost Statements prepared on or after
1st April 2010.
 Cost Accounting Standard 7 – Employee Cost
Labour is an important element of cost and for overall cost control and cost reduction,
Labour Cost is of paramount importance. Labour Cost is also called as Employee Cost.
However, for control and reduction of Labour Cost, it is essential to compute the Labour
Cost in a scientific manner and hence there should be proper systems and processes and
documentation, which will help computation of Labour Cost in a scientific manner. It
should be remembered that Labour is not like material as there is a human aspect
involved in it. Therefore, there should be a comprehensive study of all related aspects of
Labour Cost and then only computation and control over the same will be possible.
Attention should also be paid to the productivity aspect. Low productivity results in
higher Labour Cost per unit while higher productivity will reduce the Labour Cost per
unit.

 This standard deals with the principles and methods to classify, measure and
assign employee cost to determine the cost of a product or a service and also
about its disclosure in the cost statements.
 In order to bring uniformity and consistency in the principles and methods of
determining the employee cost with a reasonable degree of accuracy, this
standard has been established by The Institute.
 This standard should be applied to cost statements which require
classification, measurement, assignment, presentation and disclosure of
material costs including those requiring attestation.
 Employee cost will include payments made in cash or kind.
 Direct employee cost should be presented as a separate cost head while
indirect employee cost should be presented as a part of overheads in the cost
statements.
 Disclosures may be made in the body of the Cost statement or as a footnote
or as a separate schedule to the main statement.
So, when we are on to preparing a Cost Statement, we must follow these Cost Accounting
Standards which shows the treatment of these two major costs forming part of the overall
expenses any organization, that are, material cost & labour cost.

This will ensure uniformity of the various Cost Statements prepared for different entities
& will also help in displaying a true & fair picture of the cost allocation in any
organization.
 A) AGRICULTURE SECTOR

1. Features
 Challenges associated with structure of the industry which is fragmented and
unorganized
 Lack of understanding of costs
 Understanding the potential of working collaboratively
 Use of target costing techniques for price determination
 Imbalance of power across the supply chain

2. Fragmented Structure of the Industry

The structure of the agriculture sector is seen to be unorganized and fragmented in nature
and thus lack of effective regulation in the given sector is also seen as one of the reasons why
farmers seem to be exploited and have been operating at very low margins.
Lack of understanding of costs and prices by the farmers One of the key reasons seen for the
lack of appropriate cost management in the given sector is with regards to the lack of
prioritization of the cost management among farmers because of lack of knowledge with
regards to the same.
Understanding the potential to work collaboratively The farmers need to be open to
innovation in cost management and contracting techniques.
Though there is scope for cost reduction in order to bring about improvement in the profit
margins for the farmers, it is seen that generally the profits tend to get transferred to the
customers and the only point of negotiation is in the contract pricing with the retailers which
the farmers fail to reach.

3. Target cost Management

The target costing technique involves determining the cost by subtracting the required
margin from the anticipated price for the agricultural produce. However, the anticipated price
for the agricultural products fluctuates making the process of cost management using the
target cost management system ineffective in the case of the agricultural sector Imbalance of
power distribution With the fragmentation and the unorganized nature of the farmers
operating in the agricultural sector, the power of bargaining seems to lie in the hands of the
wholesalers purchasing the produce from the farmers resulting in overall low margins for
farmers in comparisons to the margins earned by the wholesalers and the retailers operating
in the said sector

4. Cost Management
Cost Management focuses upon all the activities internal and external to the value chain
process Cost Management for Specific Sector 239 in order to help in cost reduction and cost
control. In relation to the agricultural sector, the Activity Based Costing technique is being
increasingly accepted for the purpose of cost management.
Large scale enterprises engaged in the agriculture sector that are engaged in the investment
of high scale capital expenditure require efficient utilization of technology as well as the
efficient use of production technology that are available at their disposal.
Thus, the Activity Based Costing as the name suggests provides a better manner in which the
indirect costs associated with the processes carried out in the agricultural sector can be
carried out in an efficient manner.
It is a step up from the target cost management technique where the fluctuation in the
anticipated price which forms part of the formula might not result in appropriate
determination of the target costs.
Therefore, ABC costing can help in allocation of the costs in relation to the various activities
associated with the production based upon the cost drivers identified in relation to each
production activity.
 Benefits of using ABC for cost management in the agricultural sector
 Adjustable costing technique
 Faster and more accurate
 Enables carrying out a more detailed cost analysis

5. Minimum Support Price (MSP)

In India, Minimum Support Price (MSP) was introduced by the Government of India to
protect farmers against sharp dip of agricultural prices, which was usually observed during
the harvest seasons. The harvest seasons are associated with huge supply, which
overshadows the demand, and hence, in most cases the commodity prices hit the bottom.
This forces the farmers, in necessity of money for repayment of debts, in selling their
produce at losses or very little profits. Thus, the government fixes the MSP, as a part of
government food grain procurement. Selling at MSP ensures profit margins for farmers and
avoids distress selling situations.
 B) IT Sector
There are a number of challenges associated with the management of the costs associated
with the Information Technology expenditures incurred by the Multi-National corporations.
Thus, the complexity of the operating structure and the difficulty seen in the implementation
of the cost allocation models, it is seen that in order to manage the IT costs, most
organizations tend to develop centralized IT departments acting as cost centers for the
purpose of managing the IT budgets as well as allocation of costs associated with along with
the charging back of expenses that are incurred by the business units.
1) IT Organization’s Engagement Model
The question that needs to be addressed under the same is that whether the IT organization
should be organized as a cost center to the organization or whether it should be seen as a
strategic partner to the business. With more and more organizations whether large or small in
nature, opting for third party allocation or opting for cloud computing services it can be seen
that the internal IT departments are fighting hard for remaining relevant for the organization.
In order to stay relevant, what the It department needs is a better visibility towards the IT
needs of the organization. In order to do the same, organizations operating in the given sector
can adopt what is referred as to the 4D framework

2) 4D IT Cost Optimization Framework - Defining Organization

Vision
Any amount of spending carried out in relation to the Information Technology requirements
of the organization needs to be aligned to the organizational vision and long term objectives.
Business owners should have a sense of ownership and thereby control the IT costs in an
effective manner. The perspectives of the key stakeholders i.e. CEO, CFO and directors must
be taken into consideration when deciding upon the IT consumption within the organization.
The additional visibility through the model needs to determine the appropriate method of
cost allocation in relation to the IT cost burden. Thus, the allocation model that is chosen
needs to be both flexible and at the same time avoid being too complex in nature. The
organization can either opt for a simple method of dividing the entire IT cost by the number
of hours consumed by each department or a more complex but accurate method of ABC
costing could be used for allocation of the costs based upon the associated cost drivers
associated with each set of activities.

3) Documentation of the current state

The next step involves documentation of the current state of the IT department implemented
within the organization in order to identify gaps and potential weaknesses identified in
relation to the current state for the purpose of identification of the appropriate pain points as
well as identification of areas for potential automation

4) Delineation of target business architecture

Once the current state of the IT architecture has been documented, the next step is
developing a target business architecture for the purpose of addressing the gaps and
limitations identified and laying down the foundation with regards to the formation of the
crux of the IT cost management framework.

5) Decision: Build v/s Buy

The last step understands whether the framework built is bought or custom built internally.
The answer to the question involves a great amount of brainstorming and research taking into
consideration the view point of all the strategic stakeholders involved
 Report Writing on Agricultural Sector
Introduction
Agriculture is the primary source of livelihood for about 58% of India’s population. Gross
Value Added by agriculture, forestry, and fishing was estimated at Rs. 19.48 lakh crore (US$
276.37 billion) in FY20. As per 1st advance estimates of National Income FY22, the
percentage share of GVA of Agriculture and Allied Sectors (at current prices) is 18.8% of
the total GVA. Consumer spending in India will return to growth in 2021 post the pandemic-
led contraction, expanding by as much as 6.6%. Agriculture and allied activities recorded a
growth rate of 3.6% at constant prices in FY21.
The Indian food industry is poised for huge growth, increasing its contribution to world food
trade every year due to its immense potential for value addition, particularly within the food
processing industry. Indian food and grocery market is the world’s sixth largest, with retail
contributing 70% of the sales. The Indian food processing industry accounts for 32% of the
country’s total food market, one of the largest industries in India and is ranked fifth in terms
of production, consumption, export and expected growth.

INVESTMENT
Some major investments and developments in agriculture are as follows:

From 2017 to 2020, India received ~US$ 1 billion in agritech funding. With significant
interest from the investors, India ranks third in terms of agritech funding and number of
agritech start-ups. By 2025, Indian agritech companies are likely to witness investments
worth US$ 30-35 billion.
In March 2020, Fact, the oldest large-scale fertiliser manufacturer in the country, crossed one
million production and sales mark.
Nestle India will invest Rs. 700 crore (US$ 100.16 million) in construction of its ninth
factory in Gujarat.
In November 2019, Haldiram entered into an agreement for Amazon's global selling program
to E-tail its delicacies in the United States.
In November 2019, Coca-Cola launched ‘Rani Float’ fruit juices to step out of its trademark
fizzy drinks.
Two diagnostic kits developed by Indian Council of Agricultural Research (ICAR) - Indian
Veterinary Research Institute (IVRI) and the Japanese Encephalitis lgM ELISA were
launched in October 2019.
Investment worth Rs. 8,500 crore (US$ 1.19 billion) have been announced in India for
ethanol production.

ROAD AHEAD
India is expected to achieve the ambitious goal of doubling farm income by 2022. The
agriculture sector in India is expected to generate better momentum in the next few years due
to increased investment in agricultural infrastructure such as irrigation facilities,
warehousing and cold storage. Furthermore, the growing use of genetically modified crops
will likely improve the yield for Indian farmers. India is expected to be self-sufficient in
pulses in the coming few years due to concerted effort of scientists to get early maturing
varieties of pulses and the increase in minimum support price.

In the next five years, the central government will aim US$ 9 billion in investments in the
fisheries sector under PM Matsya Sampada Yojana. The government is targeting to raise fish
production to 220 lakh tonnes by 2024-25.

Going forward, the adoption of food safety and quality assurance mechanisms such as Total
Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical
Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic
Practices (GHP) by the food processing industry will offer several benefits. The agri export
from India is likely to reach the target of US$ 60 billion by the year 2022

Thank You