Cost_Accounting_Standard_2_-_Capacity_Determination - COST...

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CAPACITY DETERMINATION The following is the COST ACCOUNTING STANDARD 2 (CAS 2) issued by the Council of the Institute of Cost and Works Accountants of India on “CAPACITY DETERMINATION”. The standard deals with determination of capacity of a unit. In this Standard, the standard portions have been set in bold italic type. These are to be read in the context of the background material which has been set in normal type. 1. Introduction Better utilization of capacity means better utilization of resources. It is an important consideration for cost determination and cost reduction. Thus, it is essential to establish the capacity of the plant. Cost Accounting Records Rules under section 209(1)(d) of Companies Act, 1956 and Cost Audit Report Rules, 2001 under section 233B of the said Act specify that comparative statement of installed capacity and actual capacity utilization is to be recorded and furnished in order to assess the operating level. 2. Objective 2.1 The objective of the standard is to prescribe the method of determination of capacity to be applied uniformly and consistently. 2.2 The standard is to help the management to identify the bottlenecks, imbalances and idle capacity for effective use of various resources. 2.3 The standard is to help in proper allocation, apportionment and absorption of cost. 3. Scope 3.1 The standard should be followed for capacity determination required to be carried out for any purpose or under provisions of any Act, Rules or Regulations except where capacity determination has been prescribed otherwise. 3.2 The standard shall also be followed for maintaining cost records under the Cost Accounting Records Rules or for furnishing information on Capacity Utilization under the Cost Audit Report Rules issued pursuant to Section 209(1)(d) and section 233B of Companies Act,1956 respectively. 3.3 The standard is applicable for an undertaking, whether existing or new, where there is expansion of more than 5% of the existing capacity due to introduction of new machines or productive resources. Similarly, the standard is also applicable where there is more than 5% reduction of the existing capacity due to disposal or withdrawal or impairment of old machines or productive resources. 1
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This note was uploaded on 10/11/2010 for the course FINANCE 5101144 taught by Professor Hjk during the Spring '10 term at Arab Academy for Science, Technology & Maritime Transport.

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Cost_Accounting_Standard_2_-_Capacity_Determination - COST...

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