Material is the largest cost element for most manufacturers. CAS-6 sets the principles for measuring it consistently across periods and products.
Cost of material received
The cost of material received includes:
- purchase price, net of trade discounts and rebates;
- duties and taxes that are not recoverable — GST for which input tax credit is available is excluded;
- freight inwards, insurance and other expenses directly attributable to bringing the material to its location;
- for imported material, customs duty and clearing charges, adjusted for any duty credit or refund available.
Demurrage, detention and penalties are not part of material cost; they are treated as abnormal.
Issues to production
Material issued is valued using a consistent method, such as first-in-first-out or weighted average. Standard cost may be used, with variances analysed and treated in line with the standard. The method should not change between periods without reason and disclosure.
Losses
| Type | Treatment |
|---|---|
| Normal loss (evaporation, unavoidable scrap within norms) | Absorbed into the cost of good output |
| Abnormal loss (beyond norms, theft, damage) | Excluded from material cost; charged to the costing profit and loss account |
Scrap and residue realisation reduces material cost.
Self-manufactured components
Components made in-house and used in production are valued at their cost of production, following the same principles as CAS-4.
Common errors
- Including GST for which credit is available.
- Loading abnormal losses onto product cost.
- Treating freight on finished goods dispatch as material cost (it is a distribution cost).
- Valuing issues at the latest purchase price without a stated method.
Link to records and audit
Consumption per unit of output, compared with technical norms, is a standard disclosure in cost records and a focus of cost audit. Persistent deviations deserve investigation; they often point to yield losses or recording errors.