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Cost Allocation
Project Costing
Project Costing is a methodology which starts
with cost estimation for bidding and includes
tracking of scheduled milestones.
as AS-
AS-7)
Non
N RSV (Al (Also kknown as ASAS--2)
Project Duration
A project is termed as an RSV project if the
duration of the project exceeds 12 months.
N RSV P
Non Projects:
j R
Revenue iis recognised
i d only
l
on despatch of the job.
Project Cost Components
Direct Material;
Direct Expenses;
Conversion Cost-
Cost-
Labour Charges;
Other Overheads;;
Material Handling;
WIP Interest; and
Site Specific Cost
Valuation of Material
Valuation of Material includes:
Local Materials Imported Materials
Basic Cost CIF Cost
Excise Customs Duty
Octroi factory
Less Octroi
Cenvat Less
Sales tax set off Cenvat on CVD
Valuation of Project
WIP valuation or costing has following main
classifications:
l ifi ti
Direct Materials – materials forming part of
th deliverable
the d li bl product
d t andd partt off BOM
Direct Expenses – subcontracted operations,
royalty
lt / technical
t h i l know-
know
k -how
h ffees, thi thirdd
party inspection etc.
Conversion
C i costt – direct
di t labour,
l b allocation
ll ti
of fixed and variable overheads to the
product on a rational basis.
basis
Valuation of Project Cost..22
Conversion cost allocation should be based on:
Fixed Overheads:
Overheads: Allocation to projects is based
on usage of production facilities by the project –
basis for costing rates is normal capacity .
Variable Overheads: Allocation to project is on the
basis of actual usage rate and not on the basis of
normal capacity.
Valuation of Project Cost..3
Material Handling – This is the cost which is
loaded for apportioning the material handling
charges The rate is fixed at the beginning of
charges.
the financial year based on historical data.
WIP Interest – Interest cost is calculated on the
WIP amount at the rate determined at the
beginning of the financial year
year. This rate is the
cost of capital employed.
Valuation of Project Cost..4
Site Specific Costs – The cost incurred on
installation at site are captured separately.
Summary
Capital items can not be charged to jobs.
Variable production overheads like gases,
gases fuel
and tools are charged to jobs through the
costing recovery rate mechanism and not
directly issued to jobs.
Excess / left over materials should be taken
back in inventory & reduced from Project
Cost.
Cost
Thank You