TaxTMI 
TaxTMI 
GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON CAPACITY DETERMINATION – CAS-2 (REVISED 2015)
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....st Records and Audit) Rules, 2014. As per rule 3, for the purposes of sub-section (1) of Section 148 of the Companies Act, 2013, the class of companies including foreign companies defined in clause (42) of Section 2 of the Companies Act, 2013 (18 of 2013), engaged in the production of the goods or providing services specified in the Table A and Table B to the above referred Rules have to maintain cost records in Form CRA-1 annexed to above rules having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year. Form CRA-1 annexed to the "Companies (Cost Records and Audit) Rules, 2014 specified various items of costs which are to be included in the books of accounts. Para 18 of Form CRA-1 of the above Rules deals with Capacity Determination. As per proviso to Section 148 (3) of the Companies Act 2013, the auditor conducting the cost audit shall comply with the Cost Auditing Standards issued by the Institute of Cost Accountants of India with the approval of Central Government. Cost Auditing Standard 103 on Overall Objective of the Independent Cost Auditor and conduct of an audit in accordance wit....
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....ements, if any; (d) Capacity available through loan licence /third parties; (e) Total available capacity [(a) to (d)] The above information is to be furnished for each product separately. Service Sector (Part C): Available Capacity: (a) Installed Capacity; (b) Capacity enhanced during the year, if any; (c) Total available capacity [ (a)+(b)] The above information is to be furnished for each service separately. Need for Capacity Determination The capacity details are required for: i) Identify capacities of each of deployed facilities and through the process assess bottlenecks; ii) Evaluating potential for future expansion, understanding the scope and effort towards de-bottlenecking and balancing of surplus capacities; iii) Internal management for planning, scheduling of production and monitoring during implementation of the planned programme Rationale i) It is observed that the practice to assess the capacity of facilities is either absent or deficient; Planning is resorted directly from the judged bottleneck, without systematic evaluation of facilities. ii) The concepts, d....
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.... per shift/day achieved for a reasonable period will be taken as a base for calculation of installed capacity. (b) If the production flow is through separate segments of the plant, with an intermediate output occurring at the end of each segment the lowest segmental capacity becomes the determinant of the overall plant capacity. ii) Available machine or man hours: This unit for measuring and expressing capacity will be applicable in most of the industries particularly where products /sizes/ profiles are manufactured from the same facilities. The relevant variables will be: (a) A year of say 330 working days of 3 shifts, each will be norm (or industry norm, if available); (b) A normal production time (turn-around time) will include set-up time, tool change-over time, production cycle time and time taken for equipment cleaning; (c) Different products/sizes/profiles coming of the same plant will be converted into standard production hours using standard time required per unit of product; (d) Where product is having various diameters, thickness, Horse Power (HP) rating, Kilo Watt (KW) rating and so on, equivalent production shall be ca....
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....tion capacity of the machineries installed in the unit for a period or the year under report. The installed capacity is to be determined with reference to a single working shift or double or triple shift working as per technical specifications. 5.3. Reassessment of Installed Capacity: Installed capacity shall be reassessed in case of any change due to addition, deletion, modification or for any other reason from the date of such change. In case any modifications are made in some machinery or balancing equipment are added subsequently and this results in enhanced installed capacity, the installed capacity shall be reassessed. Similarly, if a machine is discarded or disposed off, the installed capacity shall be reassessed accordingly. Addition or deletion shall be effective from the date of such change. In case the installed capacity is reassessed as per directions of the Government or Regulator, the installed capacity shall be in accordance with the said directives. 5.4. Normal Capacity: Normal capacity is determined after suitable adjustments to the Installed Capacity. The following adjustments from installed capacity shall be made to determine normal capacity:....
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....it. Capacity of a Hospital is to be determined based on the Number of Available Beds in the Hospital for In-Patients (IP) multiplied by 365 days. Capacity Utilisation is to be calculated on the basis of Number of Bed Days occupied. However, in case of different procedures / departments, Capacity is to be determined separately on the basis of available equipment & facilities. In case of aeronautic service industry, where aircrafts of different capacities are landing and taking off depending upon the type of aircraft of different capacities, cargo handled of different bag sizes, and weight, it is to be based on certain technical considerations such as number of passengers or volume of cargo handled per annum and so on. Capacity of an Airport is to be determined based on the Capacity of Passengers that can be handled by the Airport during peak hours. The Capacity of Airport should be determined based on the capacity to handle peak load passengers by the Terminal covering Seating, Car Parking and other facilities based on the guidelines of International Civil Aviation Federation. Capacity of the Port is to be determined based on the available facilit....
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.... working that is single shift or multiple shifts. In case there is change in the installed and normal capacity either due to increase or reduction in capacity during the period under report, the same shall be disclosed indicating the revised capacity. Details of capacity enhanced through leasing arrangements, or outsourced to others, if any, are to be indicated separately. In case there is low capacity utilization either due to lower demand or breakdown and so on, details are to be furnished with reasons. If due to underutilization of capacity, there is abnormal cost, the same shall be disclosed with reason thereof. Abnormal idle capacity is the difference between normal capacity and actual capacity utilization where the actual capacity is lower than the normal capacity. 7.2 Disclosures shall be made only where material, significant and quantifiable. A piece of information is material, if its non disclosure could influence the decision of a user. Materiality and significance of any information will not be same for different entities but would depend from situation to situation. If the information is material, significant and quantifiable, the same is to be disclosed. 7.....
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....ason days worked = 150 days Total cane crushed during the season = 284550 Tonnes Average cane crushed per day = 284550/150 =1897 tonnes per day Capacity Utilisation = 1897/3000 = 63.23% Annexure-4 (Illustration 4.1) Illustration of Capacity Utilization in Pharmaceutical Company-Bulk Drugs, having Common Manufacturing facility with Multiple Reaction Vessel for Multiple Bulk drugs production A Pharmaceutical company has 30 reaction vessels of different capacity spread over 5 production blocks at one location. The company manufactures approx. 50 types of Bulk drugs in a year. Product can be manufactured in any of the vessels depending on the requirement of batch size and quantity. Every year a few new types of bulk drugs get added in the product range and few bulk drug production gets discontinued. Company is working for 365 days in 3 shifts. Capacity is determined based on Total Volumetric reaction hours (GN of CAS-2 Point 5.1.ii-Available Machine or man hours) Total Volumetric reaction hours available = Each reactor Capacity*Total hours available Capacity utilization percentage = Total Volumetric reaction hours used/Total volu....
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....3,50,40,000 7,320 2,92,80,000 5,408 2,16,32,000 73.88% Block-4 R-403 6,300 5,51,88,000 7,320 4,61,16,000 5,360 3,37,68,000 73.22% Block-4 R-404 2,000 1,75,20,000 7,320 1,46,40,000 6,056 1,21,12,000 82.73% Block-4 R-405 630 55,18,800 7,320 46,11,600 4,400 27,72,000 60.11% Block-4 R-406 250 21,90,000 7,320 18,30,000 5,528 13,82,000 75.52% Block-5 R-501 1,000 87,60,000 7,320 73,20,000 3,776 37,76,000 51.58% Block-5 R-502 630 55,18,800 7,320 46,11,600 4,256 26,81,280 58.14% Block-5 R-503 250 21,90,000 7,320 18,30,000 3,656 9,14,000 49.95% Block-5 R-504 1,000 87,60,000 7,320 73,20,000 4,472 44,72,000 61.09% Block-5 R-505 500 43,80,000 7,320 36,60,000 3,632 18,16,000 49.62% Block-5 R-506 630 55,18,800 7,320 46,11,600 4,400 27,72,000 60.11% 44,62,34,400 37,28,80,800 25,59,81,280 68.65% Note: 1) Cost apportionment is to be done for each reacti....
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....bsp; (d) Capacity available through loan license or third parties (e) Available Capacity of Product or Activity group 74913.735 2. Actual Production (a) Self manufactured (b) Produced under leasing arrangements (c) Produced on loan license / by third parties on job work (d) Actual Production Quantity - 3. Production as per Excise Records 4. Capacity Utilization (in-house) 68.65% Note: 1. Enter the actual production quantity in Kgs here of all the APIs being reported. 2. In case each API is having a separate cost statement, the actual quantity would represent production of the respective APIs. 3. The Installed Capacity and Percentage utilisation will be same in all sheets. Annexure-4 (Illustration 4.2) Equivalent Standard Time Considered for Number of Batches Calculation Illustration of Capacity Utilization in Pharmaceutical Company - Formulation for Sterile Product Division A pharmaceutical company has 2 production lines. By changing minor equipment lines can produce Vials/PFs. At a time, only one batch can be taken for production for each line. As the medicine....
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....tion 312 332 Production Capacity No. of Batch A. Installed Capacity (365 days * 24 hrs * 2 line) / standard batch hours Nos 381 B. Normal Capacity Nos 332 C. Actual Capacity Utilised (Equivalent number of batches) Nos 175 Capacity Utilization Percentage for the facility 52.7% * Installed Capacity can be Based on Technical Evaluation also. * Normal Capacity considered after 3% Variation i.e. Actual number of equivalent batches considered after 3% variation Annexure-4 (Illustration 4.3) Illustration of Capacity Utilisation in Pharmaceutical company -Bulk Drugs, having a common reaction vessel with limited bulk drug product range A pharmaceutical company has a reaction vessel which is common for three drugs - A, B and C. Capacity utilization is limited to this sophisticated reaction vessel through which all the three drugs pass through. It can be used for only 7200 hours in a year after taking into account maintenance and down time. Capacity Utilization for each drug is on the basis of Installed capacity for each drug depending upon: Total vessel time ava....
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.... Maximum number of hours available in a year 1. Number of days in year 365 2. Less: Maintenance down time 12M*2 days (can be based on trend of Previous years) 24 3. Less: Product Changeover (No of Prod. 10*4 times in year*6 hrs. cleaning) 10 4. Less: Level 1 Cleaning time (No of days X 2 hours/24) or (Based on trend of previous years) 266 22 5. No of Days Available for the year 309 6. No of Hours Available for each Line (No *24) 7,416 7. No of Hours Available for 2 Line 14,832 8. Minimum Maximum hours available after considering +/- 3% Variation 14,387 15,277 Production Capacity Based on Hours A. Installed Capacity (365 days * 24 hrs * 2 line) Hours 17,520 B. Normal Capacity Hours 15,277 C. Actual Capacity Hours 8,051 Capacity Utilization Percentage 52.7% Note: * Installed Capacity can be based on Technical Evaluation also. * Normal Capacity considered after 3% Variation. Annexure 5 Increase in capacity during the Year Accounting year = 1ST April 2014 to 31st March 2015 Installed capacity to assemble cars (During the year) ....
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....standard is to bring uniformity and consistency in the principles and methods of determination of capacity with reasonable accuracy. 3. Scope This standard shall be applied to the cost statements, including those requiring attestation, which require determination of capacity for assignment of overheads. 4. Definitions The following terms are being used in this standard with the meaning specified. 4.1 Abnormal Idle Capacity: Abnormal idle capacity is the difference between normal capacity and actual capacity utilization where the actual capacity is lower than the normal capacity. 4.2 Actual capacity utilization: Actual capacity utilization is measured in terms of volume of production achieved or service provided in a specified period. Volume may be measured in terms of units produced or services provided or equivalent machine or man hours, as applicable. Actual capacity utilization is usually expressed as a percentage of installed capacity. 4.3 Cost Object: An activity, contract, cost Centre, customer, product, process, project, service or any other object for which costs are ascertained. 4.4 Installed capacity: Insta....