Principles of cost analysis for captive consumption :
Institute of Cost Accountants of India (ICAI) has issued Cost Accounting Standard CAS-4 titled ‘Cost of Production for Captive Consumption’. The standard deals with determination of cost of production for captive consumption. CBE&C, vide circular No. 692/8/2003 dated 13-2-2003, has clarified that in case of captive consumption, cost calculation should be as per CAS-4 standard only.
Following details are based on those prescribed in CAS-1 to CAS-4.
Formula of costs – Cost of Production will include various cost components as defined in Cost Accounting Standard -1 (Classification of Cost – CAS-1). As per CAS-1, the cost is classified as follows –
Direct material Cost + Direct labour Cost + Direct Expenses = Prime Cost
Prime Cost + Production Overheads + Administration Overheads + R&D Cost (Apportioned) = Cost of Production
Cost of Production + Selling Cost + Distribution Cost = Cost of Sales
(Note that Cost of Sales + Profit will be equal to Selling Price).