COST ACCOUNTING STANDARD

Cost Accounting Standard

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	Scope of Application

§3.	Establishment of Cost Accounting System

§4.	Scope of Manufacturing Costs

§5.	Cost Accounting Period

§6.	General Principles

§7.	Classification of Manufacturing Costs

II.	Actual Cost Accounting System

§8.	Procedure of Actual Cost Accounting

§9.	Measurement of Raw Materials Costs

§10.	Measurement of Labor Costs

§11.	Measurement of Manufacturing Overheads

§12.	Measurement of Outside Manufacturers' Costs

§13.	Special Provisions for Using Predetermined Prices

§14.	Costing by Cost Department

§15.	Procedures for Measuring Department Costs

§16.	Direct Department Costs and Joint Department Costs

§17.	Product Costing

§18.	Job-Order Costing

§19.	Comprehensive Process Costing

§20.	Process Costing

§21.	Group Costing

§22.	Grade Costing

§23.	Joint-Products Costing

§24.	Valuation of Byproducts and Scrap

§25.	Calculation of Spoilage Costs

III.	Standard Cost Accounting System

§26.	Application of Standard Costing

§27.	Calculation of Standard Cost

§28.	Standard Direct Materials Costs

§29.	Standard Direct Labor Costs

§30.	Standard Manufacturing Overhead Costs

§31.	Adjustment of Cost Standards

§32.	Cost Variances

§33.	Accounting Treatment for Cost Variances

IV.	Supplementary Provisions

§34.	Application to Other Industries

Addendum

Enacted on April, 1, 1998

Amended on December, 8, 1999

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

In accordance with Article 90 of the Financial Accounting Standards for Business Enterprises, this Standard prescribes the detailed matters on the measurement of product costs in preparing financial statements.

§2. Scope of Application

This Standard should be applied to the measurement of costs incurred in connection with the production of goods (hereinafter referred to as "manufacturing costs")

§3. Establishment of Cost Accounting System

(1) An enterprise should establish the actual costing system or standard costing system to measure and report manufacturing costs.

(2) The costing system selected by an enterprise should be applied consistently and should not be changed without justifiable reasons.

§4. Scope of Manufacturing Costs

(1) Manufacturing costs include only the value of economic resources consumed in producing goods.

(2) Unusual or abnormal consumption of resources should not be included in manufacturing costs.

§5. Cost Accounting Period

Cost accounting period should correspond with the fiscal year of a business enterprise. Monthly or quarterly cost accounting may be conducted, if necessary.

§6. General Principles

Measurement of manufacturing costs should be based on the following principles:

1.	Manufacturing costs should be measured in connection with the production of goods.

2.	Manufacturing costs should be measured on the basis of reliable and objective data and evidence.

3.	Manufacturing costs should be measured on the basis of the costs incurred in producing goods.

4.	Manufacturing costs should be directly assigned to the related products or cost departments on the basis of causality or expected economic benefits, and should be allocated by using a rational allocation method if the direct assignment is infeasible.

§7. Classification of Manufacturing Costs

(1) Manufacturing costs may be classified as raw materials costs, labor costs and manufacturing overheads, or as direct materials costs, direct labor costs and manufacturing overheads.

(2) Manufacturing costs and selling and administrative expenses should be separately accumulated. However, if the direct separation cannot be done, costs should be accumulated by cost item and then should be allocated to manufacturing costs and selling and administrative expenses by using a rational allocation basis.

CHAPTER II.

ACTUAL COST ACCOUNTING SYSTEM

§8. Procedure of Actual Cost Accounting

In actual cost accounting, manufacturing costs should be measured by accumulating the actual costs incurred by cost item and by cost department

§9. Measurement of Raw Materials Costs

(1) Raw materials costs should be measured by deducting ending inventory of raw materials from the sum of beginning inventory of raw materials and purchases of raw materials during the period.

(2) The quantity of raw materials consumed should be measured from perpetual inventory records. If necessary, it may be measured by physical inventory counts or rollback calculation, or a combination of those methods may be applied.

(3) The consumption of raw materials should be measured at the acquisition cost. In the presence of multiple acquisition costs, the cost of raw materials should be measured by using the first-in, first-out (FIFO), the last-in, first-out (LIFO), moving average or weighted average methods.

§10. Measurement of Labor Costs

(1) Labor costs should be measured by accumulating the actual costs incurred during the period.

(2) Labor costs incurred in proportion to hours worked or work volume should be measured by multiplying the actual hours or volume by the individual or average wage rate.

(3) Labor costs, such as bonus or special allowances, which are not paid on a consistent basis, should be allocated to the cost accounting period.

§11. Measurement of Manufacturing Overheads

(1) Manufacturing overheads should comprise all costs other than raw materials costs and labor costs. Details of manufacturing overheads should be presented using appropriate accounts.

(2) Manufacturing overheads should be measured by accumulating the actual costs incurred during the period.

(3) Manufacturing overheads incurred in proportion to hours or quantities consumed should be measured by multiplying the actual hours or quantities consumed by the unit price.

§12. Measurement of Outside Manufacturers' Costs

(1) Outside manufacturers' costs for production of goods should be measured by accumulating the actual costs incurred during the period.

(2) Outside manufacturers' costs may be classified as raw materials or manufacturing overheads, depending on their nature, and can be reported using a separate account if the amount is material.

§13. Special Provisions for Using Predetermined Prices

Notwithstanding Article 8, manufacturing costs may be measured by  predetermined price or amount for raw materials, labor costs and manufacturing overheads, and manufacturing overheads may be allocated using a predetermined overhead rate.

§14. Costing by Cost Department

(1) Manufacturing costs may be accumulated by cost department for effective cost control and accurate costing. In this case, cost elements accumulated by cost item are reaccumulated by cost department and then allocated to products.

(2) Cost departments are classified as either manufacturing departments or supporting departments.

(3) Manufacturing departments are those in which production work is performed, and can be subdivided by manufacturing activity.

(4) Supporting departments are those which assist manufacturing departments, and can be subdivided by supporting activity.

§15. Procedures for Measuring Department Costs

(1) Cost elements are assigned to manufacturing departments and supporting departments. Supporting department costs are then allocated to each manufacturing department by applying the direct method, the step allocation method or the reciprocal allocation method, etc.

(2) Cost elements accumulated in manufacturing departments may be accumulated by process or job unit in the department, if necessary.

§16. Direct Department Costs and Joint Department Costs

(1) Cost elements are classified as direct department costs or joint department costs, depending on the possibility of direct accumulation.

(2) Direct department costs should be directly charged to the source departments. Joint department costs should be allocated to the related departments by using a reasonable allocation basis.

§17. Product Costing

Product costing means the procedures by which cost elements are accumulated by product and then unit production cost is determined. Product costing can be classified as job order costing or comprehensive process costing, etc., depending on the type of production.

§18. Job-Order Costing

(1) Job-order costing should be applied to production of different types of products. Product costs are measured by specific job-order.

(2) Manufacturing overheads to be allocated to each product is determined using the actual or predetermined overhead rate for each manufacturing department, small process, or job unit. However, manufacturing overheads can be assigned directly to products instead of allocating to manufacturing departments, if necessary.

§19. Comprehensive Process Costing

(1) Comprehensive process costing should be applied to continuous production of homogeneous or heterogeneous products.

(2) The unit production cost is determined by measuring the total costs of finished goods, which are determined by allocating the sum of the total manufacturing costs incurred during the period and the beginning work in process to the finished goods and the ending work in process.

(3) Costs of the finished goods and the ending work in process should be measured on the basis of equivalent units of work done and by applying FIFO, LIFO, the weighted average method or other reasonable methods.

(4) Equivalent units of work done for the ending work in process may be calculated separately for direct raw materials and conversion costs on the basis of raw materials input or degree of completion, etc.

(5) Comprehensive process costing is classified into process costing, group costing, grade costing, and joint-product costing, depending on the type of product and manufacturing process.

§20. Process Costing

(1) Process costing should be applied to the case that manufacturing processes consist of more than two continuous processes and manufacturing costs are to be measured for each process.

(2) The manufacturing costs in the preceding process should be added to those of the next process.

(3) In the case that all raw materials are put into the initial process and only conversion costs are incurred thereafter, total costs of finished goods can be calculated by accumulating conversion costs for each process and adding raw materials costs thereto.

§21. Group Costing

(1) Group costing should be applied to continuous production of different types of products.

(2) In group costing, manufacturing costs incurred during the period are classified into direct group costs and indirect group costs. The direct group costs should be directly assigned to each group, and the indirect group costs should be allocated to each group on a reasonable basis to determine total costs for each group.

§22. Grade Costing

(1) Grade costing should be applied when the same type of products with different qualities are continuously manufactured.

(2) The unit production cost of each grade product should be determined by allocating total costs of finished goods during the period to each grade products using a reasonable allocation basis.

(3) In the case that the direct costs are identifiable for each grade products, these costs should be assigned directly to each grade products and the indirect costs should be allocated in accordance with paragraph (2) above.

§23. Joint-Products Costing

(1) Joint-products costing should be applied when different types of products are produced from the same process using the same raw materials but none of them can be considered byproducts.

(2) The provisions in paragraphs (2) and (3) of Article 22 also apply to joint- products costing.

§24. Valuation of Byproducts and Scrap

(1) The value of byproducts should be determined by applying the provisions in Article 22 or should be measured by one of the following methods.

1.	In the case that a byproduct can be sold without further processing, its value is estimated by deducting selling and administrative expenses and normal profit margin from the estimated selling price of the byproduct.

2.	If further processing is necessary for being sold, the value of byproduct is estimated by deducting further processing costs, selling and administrative expenses and normal profit margin from the estimated selling price of the byproduct.

3.	In the case of self-consumption of byproducts, the estimated purchase price of the byproduct should be used.

4.	In the case of self-consumption after further processing, the value of byproduct should be calculated by deducting further processing costs from the estimated purchase price of the byproduct.

(2) For the estimated selling price or purchase price of the byproduct mentioned in paragraph (1) above, the latest actual transaction price or currently quoted market price should be used.

(3) The selling and administrative expenses and normal profit margin mentioned in paragraph (1) above should be measured on the basis of the recent average ratio of cost of sales to sales for similar products.

(4) The provisions in paragraphs (1) through (3) should be applied to valuation of scrap, and the estimated value of scrap should be deducted from the accumulated costs for manufacturing departments or main products.

§25. Calculation of Spoilage Costs

(1) Spoilage costs should be added to manufacturing costs of the related products or included in indirect costs of the related cost departments. However, abnormal spoilage costs should be treated as non-operating expenses. Spoilage costs should be calculated in accordance with one of the following methods.

1.	If spoilage is repairable, the repairing expense should be spoilage costs.

2.	If spoilage is not repairable and entire reproduction is necessary, spoilage costs should be calculated by deducting estimated value of spoilage from the manufacturing costs incurred.

3.	If spoilage is not entirely repairable and partial reproduction is necessary, spoilage costs should be calculated by deducting estimated value of spoilage from the additional manufacturing costs incurred.

(2) The value of spoilage mentioned in paragraph (1) above should be estimated in accordance with the provisions in Article 24.

CHAPTER III.

STANDARD COST ACCOUNTING SYSTEM

§26. Application of Standard Costing

(1) Standard costing may be applied when manufacturing costs can be measured by the cost standard (hereinafter referred to as the "standard cost") which is determined in advance using objective and reasonable methods.

(2) Standard cost should be one that is attainable under the circumstances faced by the business enterprise.

§27. Calculation of Standard Cost

(1) Standard cost should be calculated for direct materials costs, direct labor costs and manufacturing overhead costs, and for product costs.

(2) Standards of cost elements should be set for quantity and unit price.

§28. Standard Direct Materials Costs

(1) Standard direct materials costs should be based on standard quantity per unit of output and standard unit price for each type of direct materials.

(2) Standard quantity of direct materials should be determined on the basis of scientific and statistical examinations regarding types and quality of materials and processing methods, and include normal spoilage and waste.

(3) If several materials are used as substitutes, standard direct materials costs should be calculated on the basis of standard mixing ratio.

(4) Standard unit price should be determined by considering the past and current market prices, anticipated future prices, and other relevant economic conditions.

§29. Standard Direct Labor Costs

(1) Standard direct labor costs should be calculated by multiplying standard work hours by standard wage rate for each direct labor.

(2) Standard work hours should be determined on the basis of scientific and statistical examinations concerning job types, machinery and tools used, job methods and labor quality, etc.

(3) Standard wage rate should be determined by considering the past and current wage rates, anticipated future changes and other relevant economic conditions.

§30. Standard Manufacturing Overhead Costs

(1) Standard manufacturing overhead costs should be the amount expected to be incurred for the period for each department or job unit.

(2) The provisions in Article 14 through Article 16 should be applied to calculation of standard manufacturing overhead costs by department.

§31. Adjustment of Cost Standards

Cost standards should be properly adjusted when there have been changes in manufacturing conditions.

§32. Cost Variances

The difference between standard costs and actual costs (hereinafter referred to as the "cost variance") should be calculated for each cost accounting period. The provisions in Article 8 through Article 16 should be applied to calculation of actual costs.

§33. Accounting Treatment for Cost Variances

(1) Cost variances should be allocated to cost of goods sold and ending inventories for the fiscal year on a consistent basis. Different allocation bases may be used for different cost elements in order to achieve accuracy in allocation of cost variances.

(2) Abnormal cost variances should be accounted for as non-operating income or expenses.

(3) Cost variances arising from using predetermined prices in actual costing system should be accounted for in accordance with paragraphs (1) and (2).

CHAPTER IV.

SUPPLEMENTARY PROVISIONS

§34. Application to Other Industries

This Standard may be applied to business enterprises in industries other than manufacturing industry.

Addendum

(December 9, 1999)

§1. Effective Date

This Standard shall be effective on December 9, 1999.