Pharmaceutical Industry (Cost Accounting Records)
Order, 2000
18th October, 2000
1. Short title, extent and commencement
a. It may be called the Pharmaceutical Industry (Cost Accounting Records) Order, 2000.
b. It extends to the whole of Pakistan.
c. It shall come into force on such date as the Securities and Exchange Commission may, by notification in the official Gazette, appoint.
2. Application
This Order shall apply to every company engaged in production, processing and manufacturing of drug products registered with Central Licencing Board setup by Federal Government under the type of “formulations” as per rule 3(iii), 197 framed under Drug Act 1976 (Act No. XXXI of 1976), as amended from time to time.
3. Maintenance of records
a. Every company to which this Order applies shall, in respect of each financial year commencing on or after the commencement of this Order, keep cost accounting records, containing, inter-alia, the particulars specified in Schedule I, II and III to this Order.
b. The cost accounting records referred to in sub-paragraph (1) shall be kept in such a way as to make it possible to calculate from the particualrs entered thererin the cost of production and cost of sales of each of the formulation products referred to in paragraph 2, during a financial year.
c. Where a company is manufacturing any other product in addition to those referred to in paragraph 2, the particualrs relating to the utilization of materials, labour and other items of cost in so far as they are applicable to such other product shall not be included in the cost of product referred to in that paragraph.
d. It shall be the duty of every person referred to in sub-section (7) of section 230 of the Companies Ordinance, 1984 (XL VII of 1984), to comply with the provisions of sub-paragraph (1), and (2) and (3) in the same manner as they are liable to maintain financial accounts required under section 233 of the said Ordinance.
4. Penalty
If a company contravenes the provisions of paragraph 3 the company and every officer thereof who is in default, including the persons referred to in sub-paragraphs (4) of paragraph 3 shall be punishable under sub-section (7) of section 230 of the companies Ordinance 1984 (XL VII of 1984)
SCHEDULE 1[See paragraph 3(1)]
1 . MATERIALS
1. Direct Materials:
a. Adequate records shall be maintained showing receipts, issues and balances, both in quantities and values of each item of direct materials such as basic for manufacture, semi-basic manufacture, excipients, pharmaceutical aids etc, required for manufacture of different types of formulations batch-wise. The basis on which the value of receipts, and issues have been calculated shall be clearly indicated in the cost records maintained or if so desired by the company in a separate manual of procedures, if any, maintained by the company or in footnotes or separate explanatory notes to the cost statements for the relevant period. Such basis shall be applied consistently throughout the relevant period. The values shall include all direct charges upto works such as excise duty, sales tax, transport, freight, handling and transit insurance premium incurred for local materials. In case of imported materials, custom duty, Iqra surcharge, sales tax, port charges, inland freight charges, sea freight and insurance charges, and any other levies and charges, and any other levies and charges payable at the time of import shall be shown separately and included to work out the landed cost. Separate record shall be maintained for imports of basic drugs from the parent company or third party suppliers in foreign country alongwith transfer prices.
b. In case basic manufactures and semi-basic manufactures used as direct materials in the manufacture of formulations, which are being produced or processed by the company itself proper cost records shall be maintained so as to arrive at the cost of each such item.
c. Consumption reflected in cost records should correspond to the date recorded in the manufacturing records under the same nomenclature as maintained under the Drugs Rules,1976.
d. All issues of production and packing materials shall be reconciled with figures shown in Annexes of Schedule III, or in any other form as thereto as possible. Any losses/surpluses arising as a result of physical verification of inventories and adjustments thereof shall be clearly indicated in the cost records.
e. Record of purchase/supply contracts entered into with local and foreign suppliers including principals shall be maintained showing the rates at which various quantities of materials are to be acquired. The records shall indicate principal features of each contract particularly conditions relating to quantity, quality, price, period of delivery, discount for transit loss and terms of payment including cash discounts. In case of basic drugs and chemicals the chemical specifications, strength and technical contents should also be clearly indicated.
f. Where some of the direct materials apart from basic manufactures and semi-basic manufactures are being produced or processed by the Company, separate records showing the cost of producing/processing such direct materials shall be maintained in such detail as may enable the company to provide particulars required in the annexes of Schedule III.
g. Any abnormal wastage of material whether in transit, storage or for any other reason shall be recorded separately indicating the stage at which such losses occurred and reasons thereof. The method of dealing with such losses in the calculation of costs shall also be indicated in the cost records. Normal wastage will be absorbed by the remaining material in itself. Realizable value of any waste material recovered or sale proceeds of any process material shall be credited to the cost of such process to arrive at the net cost of formulation produced.
h. If the quantity and value of materials consumed in a company are determined on any basis other than actuals for example at standards, the method adopted shall be mentioned in cost records and followed consistently. The overall reconciliation of such quantities and values of materials with the actuals shall be made at the end of the financial year explaining the reasons of variances. The treatment of such variances in determining the cost of items referred to in sub-para (2) of paragraph V shall be indicated in the cost records.
i. The records shall be maintained in such details as may enable the company to readily provide data required in the various Annexes of Schedule III, in a verifiable state.
2. Consumable Stores/Spares/Operating Supplies
a. Record of each item of consumable stores/spares/operating supplies shall be maintained so as to show receipts, issues and balances, both in quantities and values, required or actually used for the relevant cost centres. In case of consumable stores and small tools cost of which is insignificant, the company may if it so desires maintain such records for main group of such items.
b. Cost of consumable stores shall include all direct charges incidental to procurement of each item up to the factory. The cost of such stores/spares/operating supplies consumed shall be charged to relevant cost centre on the basis of actual consumption. The items issued for capital expenditure, such as additions to plant and machinery, shall be shown under relevant heads and not in the cost statements of formulation.
c. Wastage of consumable stores, whether in transit, storage or at any other point, shall be quantified and shown separately. Method of dealing with such losses in costing shall also be indicated in the cost records.
II. SALARIES AND WAGES
1. Adequate record shall be maintained to show the attendance of workers employed by the company whether on regular, temporary, piece-rate basis or on contract basis, as the case may be, proper records shall also be maintained in respect of payment made for overtime work and production incentives whether in the shape of production bonus or incentives based on output given to the workers. Payment of any production bonus or incentive based on output given to the workers. Payment of any retirement benefits including pension, provident fund, gratuity, old age benefits and any identifiable labour related expenses shall also be included in the labour cost of beneficiary cost centre/department. This will be done in a manner that labour cost is available for each cost centre and for each formulation and batch so that all particulars required to fill in the Annexes of Schedule III are readily available and verifiable. Idle time shall be recorded separately, cost centre-wise as far as possible showing reasons for idle time. The method adopted for accounting of idle time payment or provisions in determining cost of each product shall be disclosed in the cost records.
2. Fair and reasonable allocation shall be made for wages paid to such direct labour as has been utilized in more than one departments, between the various departments or cost centres and the basis of such allocation shall be consistently followed. Idle time or lay-off payments shall be recorded separately indicating the reasons and the method of treatment in the calculation of the cost of the items referred to in paragraph II. Any wages paid for additions to plant and machinery or other fixed assets, shall be capitalized and excluded from the cost statements.
3. Benefits paid to the employees other than covered in (a) above shall be worked out separately and shown in the cost statement department-wise.
III. SERVICE DEPARTMENTS
Adequate records shall be maintained showing expenses incurred for each Service Department, such as laboratory, testing house, animal house, transport, and quality control, these expenses have to be apportioned to other cost centres including service departments on an equitable basis. Where these service departments serve other products other than formulations suitable bases should be worked out so that the share apportioned to formulations is worked out and applied consistently.
IV. UTILITIES
Adequate record shall be maintained showing the quantity and cost of the following utilities and services both purchased/produced and utilized by different cost centres :
i. Powe
ii. Treated Water/Deionized water
iii. Refrigeration
iv. Compressed Air (if installed separately)
v. Effluent treatment
vi. Oxygen/Nitrogen Plants.
vii. Air Conditioning
viii. LPG
ix. Quality Control Department.
x. Others (to be specified).
The records shall be so maintained as to enable assessment of consumption or utilization of services by different departments, cost centres or manufacturing units. Allocation of cost shall be on the basis of actual consumption, or utilization, if possible, or on the basis of technical estimates in the absence of actual measurement. In the case of fixed charges or fuel adjustment surcharges for electricity claimed by the utility company irrespective of the actual power consumed and if the amount payable as per actual consumption falls below the contractual minimum, the difference between the contractual minimum and the actual amount shall be treated as fixed period cost and transferred to relevant Annexes of Schedule III. Cost of service including power consumed in and chargeable to non-manufacturing departments, if significant, shall be shown separately.
NOTE: In case of self generation quantity of power generated and reasons for any under utilization of power generated capacity, shall be specified and the relevant cost should be treated as fixed / period cost.
V. REPAIRS AND MAINTENANCE
Adequate records showing expenditure incurred on workshop facilities for repairs and maintenance of plant and machinery in different departments and cost centres shall be maintained on permanent basis. Details of costs incurred and the basis of allocation of repairs and maintenance expenditure to different departments or manufacturing units or cost centres shall be indicated. Cost of work of capital nature, of heavy repairs, and overhaul cost, benefit of which is likely to be spread over a period longer than the financial year, shall be shown separately. If a separate maintenance team is working for a particular department the salaries, wages, cost of consumables, spares and tools should be charged as direct expense of that department. If the maintenance services are utilized for other products such as basic manufactures and semi-manufactures also, the portion utilized for them should be segregated and charged thereto.
VI. MULTIPURPOSE VESSELS AND MACHINES
When same vessels and machines are used for manufacturing of different formulations/drugs, formulations-wise and batch-wise cost incurred may be charged accordingly. When composite machine hour rates are used for allocation of conversion costs, overheads and equipment usage, adequate records for machine hours utilization for different formulations and batches should be kept for proper apportionment of cost. The variances between the actuals and the amount charged on the basis of predetermined standard rates shall be adjusted or arriving at the actual cost of production periodically and the year end.
VII. DEPRECIATION
1. Adequate records shall be maintained showing values and other particulars of fixed assets in respect of which depreciation is to be provided. The records shall, inter-alia, indicate the cost of each item of asset, the date of its acquisition, amount of depreciation charged for the relevant period, accumulated depreciation and the written down value of the assets.
2. Basis on which depreciation is calculated and allocated to the various departments and or products/formulation shall be clearly indicated in the records.
3. Amount of depreciation chargeable to different departments, manufacturing units or cost centres, for the financial year shall be in accordance with the provisions of clause (F) of Part II of the Fourth Schedule of the Companies Ordinance 1984, and shall relate to the plant and machinery and other fixed assets utilized in such departments or units or cost centres. The method once adopted shall be applied consistently.
VIII. INSURANCE
1. Record shall be maintained showing insurance premium paid for the various risks covered for the assets and other interests of the Company.
2. Method of allocating insurance cost to the various cost centres shall be indicated in the cost records and followed consistently.
3. Amount of depreciation chargeable to different, manufacturing units or cost centres, for the financial year shall be in accordance with the provisions of clause (F) of Part II of the Fourth Schedule of the Companies Ordinance 1984, and shall relate to the plant and machinery and other fixed assets utilized in such departments or units or cost centres. The method once adopted shall be applied consistently.
IX. ROYALTY / TECHNOLOGY TRANSFER FEE
Adequate record including technical agreements shall be maintained in respect of fee paid to the collaborators or technology suppliers on recurring or non-recurring basis, party-wise. The basis of charging such amounts to the beneficiating formulations shall be indicated in the cost records.
X. OTHER OVERHEADS
Adequate records showing the amounts comprising the manufacturing overhead expenses other than those already mentioned and details of apportionment thereof to the various departments or processes or cost centres, shall be maintained. The factory overheads shall include, among other items, indirect labour cost alongwith share of labour related cost such as fringe benefits, other labour and staff welfare expenses, and establishment expenses of manufacturing of items referred in paragraph 3. If products other than formulations are also being produced in the factory, adequate bases should be developed to apportion the overhead cost equitably.
XI. CONVERSION COST
Adequate record shall be maintained for bifurcating conversion cost for each formulation batch-wise into fixed and variable factors for compiling the different Annexes of Schedule III.
XII. QUALITY CONTROL EXPENSES
In case certain formulations require continuous or periodic checks by the quality control department, as to the formula strength conforming to the standards laid down by the Government or industry, necessary records shall be maintained so that the expenses incurred on the quality control department are prorated to the formulations/batches concerned. Adequate records shall be maintained of rejected formulation/batches. Expenses incurred on quality control built in within the cost of a certain department shall be charged as direct departmental expense.
XIII. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses incurred by the research and development department shall be broken down by the nature and activity, e.g., development of new products, improvement of manufacturing processes, design and development of new plant facilities, market research for existing and new products shall be maintained separately. The benefit of some of these expenses might extend to more than one accounting cycle in which case these expenses shall be treated as deferred expenses. In other case the bases of pro-ration of the expenses to the formulations, batch-wise shall be indicated in the cost records.
XIV. INTER-DEPARTMENTAL TRANSFERS
Proper records shall be maintained showing the quantity and cost of formulation transferred to other departments/units of the company for further processing, mixing or self-consumption. Such transfers shall ordinarily be effected at cost and shall be disclosed in the cost records. If however, the transfer of formulation to other departments/units is made at a valuation other than cost, profit or loss arising out of such transfer shall be disclosed in the records.
XV. WORK-IN-PROCESS AND FINISHED GOODS INVENTORIES.
Adequate records shall be maintained showing all the receipts, issues and balances both in quantities and cost of various packing materials such as strips, ampoules, vials, bottles, cartons, boxes, labels, and literature for each item separately. Adequate records shall also be maintained for wages and other expenses incurred in respect of different size of packs adopted for marketing of formulations separately. The details of various packing materials actually used and spoiled shall be maintained in respect of each formulation. Where any formulation is repacked due to defective packing, details of such repacking for each pack shall be determined if repacking cost is significant. In case any packing materials are produced by the company, proper record showing the cost and manufacture of such items shall be maintained. In case of export packing, separate records and additional packing cost shall be maintained
XVII. EXPORT INCENTIVE / EXPENSES
Proper record of export incentive received from the Government and any additional expenses incurred will be accounted for suitably.
XVIII. COST STATEMENTS
Export of fomulations (if any) authorized shall be shown separately in cost statements for sale in the local market.
XIX. ADJUSTMENT OF COST VARIANCE
When the company maintains cost records on any basis other than actuals, such as standard costing, the records shall indicate the procedure followed by the company in working out the actual cost of product under such system. The method followed for adjusting the cost variances in determining the actual cost of the product shall be indicated clearly in the cost records. The cost variances shall be shown against the relevant heads in the respective annexes of Schedule III. The reasons for variances in respect of materials shall inter-alia be furnished separately for major materials. Variance analysis shall be made at least monthly/quarterly during the financial year and also at the year end. The reasons for variances shall be given in the cost reports.
XX. SELLING AND DISTRIBUTION EXPENSES
Administration and selling and distribution expenses shall be recorded separately and bases developed for their apportionment to different formulations, and/or products.
XXI. STATISTICAL STATEMENTS AND OTHER RECORDS
Companies may develop and adopt appropriate standards for use as a basis to evaluate performance. Alternatively formats/procedures adopted by the industry in general should be maintained.
XXII. RECONCILIATION OF COST AND FINANCIAL ACCOUNTS
1. The cost records shall be periodically reconciled with the financial accounts to ensure accuracy if integrated accounts are not maintained. Variations, if any, shall be clearly indicated and explained.
2. The reconciliation shall be done in such a manner that the profitability of the different products, as per cost statements, is correctly judged and reconciled with the overall profits of the company from all of its activities.
3. Adequate cost records shall be maintained in a manner so that the cost statements can be compiled.
SCHEDULE II
[See paragraph 3(1)]
GENERAL INFORMATION
1. Name of Company:
2. Address:
3. Location of the Factory(s)
(if more than one unit state the formulation/activities being manufactured/engaged in by each separately).
4. Date of Registration with the Central Licencing Board under the
Drugs Act, 1976 (Act No. XXI of 1976) and Drugs (Licencing and Advertising) Rules, 1976 {Rule No. 3(iii)}
5. Capacity of manufacturing: Current year Previous year Equipment:
i. Tablets
ii. Capsules
iii. Syrups
iv. Suspension
v. Injections
vi. Ointments
vii. Creams
viii. Powders
6. Affiliation with foreign manufacturers, if any.
7. Please state if basic, semi-basic and Generic drugs are also being manufactured.
8. Research and Development activity, if any.
