Cost Audit in Food Manufacturing: Is Your Biscuit or Chocolate Brand Compliant?

When it comes to food manufacturing—especially in popular FMCG categories like biscuits, chocolates, and packaged snacks—costs aren’t just about raw materials and labor. Behind every ₹10 biscuit pack or a ₹30 chocolate bar is a complex supply chain of ingredients, packaging, logistics, and factory operations. To ensure transparency and accountability in such high-volume, high-turnover industries, the Indian government mandates a cost audit under specific conditions.

So, what is a cost audit, and why does it matter to food manufacturers like you?

A cost audit is an independent verification of cost records maintained by a company. It ensures that your internal costing mechanisms align with the actual costs incurred and are compliant with the applicable regulations. For food manufacturers, this is especially vital due to the massive competition, thin profit margins, and increasing regulatory scrutiny.

In India, cost audit obligations are governed by the Companies (Cost Records and Audit) Rules, 2014 under the Companies Act, 2013. These rules mandate that companies involved in specific industries—including processed food—maintain detailed cost records and, in some cases, undergo a cost audit conducted by a certified Cost Accountant.

Now, you might be wondering:
Why are biscuit and chocolate companies specifically under MCA’s radar?

The answer lies in scale and impact. The biscuit and chocolate market in India is a multi-billion-dollar segment, serving millions daily. With such volume comes the risk of cost inflation, tax evasion, and pricing manipulation—which the Ministry of Corporate Affairs (MCA) aims to curb through stringent audit rules.

Additionally, these segments often deal with multiple SKUs, intricate packaging norms, high marketing spends, and logistics dependencies—all of which can skew costing if not recorded properly.

For companies like Parle, Britannia, ITC, Nestle, Mondelez, and even mid-sized regional brands—compliance with cost audit norms is not optional. It’s a regulatory necessity. And even if your company is smaller, once you cross certain turnover thresholds, you too fall under the purview of these rules.

Failure to comply can lead to penalties, disqualification of directors, and even MCA inspection notices. That’s why it’s essential for food manufacturers to understand the cost audit process, identify if it applies to them, and stay fully compliant.

In the next section, let’s understand the specific applicability criteria for food companies and when your biscuit or chocolate manufacturing unit is legally required to maintain cost records and get them audited.

Applicability of Cost Audit in Food Manufacturing

If you run a biscuit, chocolate, or snack manufacturing company, you might assume that regular accounting is enough. However, if your business meets certain criteria, the maintenance of cost records and cost audit becomes mandatory under Indian law.

So, when exactly does cost audit become applicable to a food product company?

📌 Regulatory Basis: Rule 4 of the Companies (Cost Records and Audit) Rules, 2014

Rule 4 provides a sector-wise applicability matrix for cost record maintenance and audit. It classifies companies into regulated sectors and non-regulated sectors. Food processing, including biscuit and chocolate manufacturing, falls under the non-regulated sector.

Let’s decode what that means for you.

📊 Cost Records Maintenance – Who Must Maintain?

As per the Cost Records Rules, every company engaged in the production or manufacture of goods in the food processing sector must maintain cost records if:

• Their overall turnover from all products/services is ₹35 crore or more in the immediately preceding financial year.

This means if your biscuit or chocolate factory generated ₹35 crore+ revenue last year, you must start maintaining cost records from this financial year onwards—irrespective of whether you’re getting them audited or not.

📋 Cost Audit Applicability – When is it Mandatory?

The cost audit becomes mandatory for food product manufacturers (non-regulated sector) when the following dual conditions are met:

1. The overall turnover of the company from all products/services is ₹100 crore or more, and

2. The turnover from individual food products or services (e.g., biscuits or chocolates) is ₹35 crore or more in the immediately preceding financial year.

Example:
If your company makes a total of ₹120 crore turnover from all products, and ₹40 crore of that comes from biscuits or chocolates—then cost audit is mandatory for you.

🚫 Exemption Cases – Who is Exempted from Cost Audit?

Even if you meet the turnover conditions, cost audit is not applicable in the following cases:

• If your company’s export revenue constitutes 75% or more of your total revenue, you are exempt from cost audit.

• If you’re operating as a Small Company (as defined under Companies Act) or a One Person Company (OPC), the rules may not apply.

However, exemptions are granted only if all specified conditions are met and proper documentation is maintained. Otherwise, the MCA may still require compliance or initiate legal action.

🧠 Key Takeaway for Biscuit & Chocolate Manufacturers

If you run an FMCG food manufacturing company, particularly in biscuits, chocolates, snacks, or confectionery, you need to evaluate:

• ✅ Was your total turnover last year ₹35 crore or more? → Maintain cost records

• ✅ Was your total turnover ₹100 crore+ and ₹35 crore+ from food items? → Cost audit is mandatory

Keeping track of these thresholds is not just about staying legal—it’s about building a financially transparent, audit-ready organization.

Next Up:
In the following section, we’ll explore what exactly must be included in cost records for biscuit and chocolate manufacturing, and how to stay ready for a cost audit with the right documentation and structure.

What Constitutes Cost Records in Biscuit & Chocolate Manufacturing?

If you’re running a biscuit, chocolate, or confectionery unit, simply maintaining financial statements is not enough. The Ministry of Corporate Affairs (MCA) has made it mandatory for certain FMCG units to maintain cost records under Rule 5 of the Companies (Cost Records and Audit) Rules, 2014.

📘 CRA-1 Format – Your Compliance Blueprint

The format and structure of cost records are prescribed in the CRA-1 form. This is not just a simple Excel workbook—it's a comprehensive set of cost details that tracks everything from raw material intake to finished product output.

In the biscuit and chocolate industry, where input costs fluctuate and margins are tight, CRA-1-compliant records provide transparency across all manufacturing and operational stages.

🍪 Key Components of Cost Records for Biscuit & Chocolate Manufacturers

1. Raw Material Cost Records
   This includes the quantity and value of inputs like flour, sugar, cocoa, oil, milk solids, emulsifiers, and preservatives. For chocolates, cocoa content and milk fat levels also need separate reporting.

2. Packaging Material Costs
   This segment is significant for FMCG brands. Costs of wrappers, trays, boxes, laminates, and export-grade packaging materials must be maintained SKU-wise.

3. Utilities and Overheads
   Energy (gas/electric ovens), water, steam, and labour costs are major contributors in food processing. These must be traced to individual product lines (e.g., glucose biscuits vs. cream biscuits).

4. Production Losses & Wastage
   Food manufacturing often leads to material loss during mixing, baking, cooling, or tempering. Proper recording of such losses is a compliance mandate under CRA-1.

5. Batch-Level Costing & SKU-Wise Analysis
   Each product variation (dark chocolate, milk chocolate, digestive biscuit, cream biscuit) should have cost breakup by SKU. This is critical for determining segment-wise profitability and pricing strategies.

6. Inventory and Valuation Records
   Raw materials, work-in-progress (WIP), and finished goods inventory must be valued and reconciled with the books. This prevents misreporting of cost of production.

🎯 Why These Records Matter

Cost records not only help in CRA-3 cost audit filings, but they also offer critical insights to management. You can identify high-cost SKUs, optimize batch sizes, reduce raw material loss, and improve packaging efficiency—while staying MCA-compliant.

Cost Audit Process for FMCG Units (Biscuits/Chocolates)

Once your company crosses the thresholds for mandatory cost audit (as per Rule 4), the audit process kicks in. Here’s how food manufacturing companies—especially in biscuits and chocolates—must approach it.

📝 Step 1: Appointment of Cost Auditor (CRA-2 Filing)

Before the audit begins, companies must formally appoint a Cost Auditor by passing a board resolution. The appointment is then intimated to the MCA using Form CRA-2 within 180 days from the start of the financial year.

✅ Example: For FY 2024-25, CRA-2 must be filed by 30th September 2024.

Only a Cost Accountant in practice (registered with ICAI-CMA) can be appointed. Make sure the auditor has relevant FMCG audit experience.

📊 Step 2: Preparation and Verification of Cost Records

The company must prepare cost records as per the CRA-1 format, covering the manufacturing cost of each product, overhead allocations, material flow, and segment-wise margins.

The cost auditor will then:

• Verify the accuracy and completeness of cost records

• Ensure records match production logs and ERP data

• Check compliance with CRA-1 structure

• Conduct physical checks of plant & stock, if required

The cost auditor may raise queries, request reconciliations, or suggest improvements in your cost system.

📤 Step 3: Filing of CRA-3 (Cost Audit Report)

Once the audit is complete, the cost auditor submits a CRA-3 report to the Board. The report includes:

• Product-wise cost statements

• Reconciliation with financial records

• Observations, qualifications (if any), and suggestions

After Board approval, the CRA-3 report must be filed online with the MCA using digital signatures of the company and cost auditor.

🕒 Deadline: Within 180 days from financial year-end (i.e., 27th September 2025 for FY 2024-25).

📅 Compliance Timelines Snapshot

✅ Don’t Wait for an MCA Notice

The MCA has increased its scrutiny on food companies for incorrect or missing cost records. Many biscuit, chocolate, and FMCG firms have received show-cause notices or have had cost audit reports rejected for non-compliance.

Even if you’re exempt this year based on turnover, preparing CRA-1 records is a smart practice—it builds transparency, supports GST reconciliation, and simplifies future audits.

Stay tuned for the next sections where we’ll cover:

• Why reconciling financial and cost records is essential in FMCG

• Penalties under Cost Audit Rules for non-compliance

• Why SSCOIndia is the right compliance partner for your biscuit or chocolate plant

Common Mistakes Food Manufacturers Make During Cost Audit

Cost audit in the food manufacturing sector—especially for FMCG products like biscuits and chocolates—is no longer optional for companies crossing the prescribed turnover limits. However, many brands still stumble during the cost audit process, risking non-compliance, penalties, and MCA scrutiny. Here are the most common mistakes food manufacturers make during cost audits:

📌 1. Non-Maintenance of SKU-Wise Cost Data

FMCG manufacturing is all about volume and variety. For chocolate or biscuit brands, each SKU (Stock Keeping Unit) may have a different cost structure—based on ingredients, shape, size, flavor, or packaging.

Yet, many companies maintain bulk costing, aggregating all products under a single cost head. This violates the CRA-1 guidelines, which mandate SKU-level cost segregation, particularly for assessing segment profitability and product-wise margins.

📌 2. Ignoring Packaging and Logistics Costs

Packaging is not just an aesthetic element in biscuits and chocolates—it's often 20–30% of the total cost. Similarly, distribution logistics across India or for exports contribute significantly to overall expenditure.

Unfortunately, manufacturers often miss segregating:

• Primary, secondary, and tertiary packaging costs

• Freight, warehousing, and retail margin data

This creates a gap between actual product cost and reported cost, leading to faulty pricing and CRA-3 discrepancies.

📌 3. Inconsistencies Between Financial and Cost Records

One of the core checkpoints in cost audit is the reconciliation of cost records with financial statements. However, discrepancies often arise due to:

• Mismatch in consumption values

• Different costing methods (e.g., standard vs actual cost)

• Unaccounted wastage or process losses

Such mismatches are red flags for the cost auditor and may lead to a qualified cost audit report, triggering MCA notices or compliance queries.

📌 4. Delayed Appointment of Auditor or CRA-3 Filing

According to the Companies (Cost Records and Audit) Rules, 2014, companies must appoint a cost auditor within 180 days of the financial year (CRA-2 filing) and submit the CRA-3 audit report within 180 days from the end of FY.

Missed deadlines lead to:

• Monetary penalties on the company and its officers

• Legal non-compliance under the Companies Act

• Loss of credibility with regulators and partners

🔍 SEO Tip: Many people search for “cost audit mistakes in FMCG” and “CRA-3 late filing penalties”. Avoid these risks with proper planning and expert support.

Why Reconciliation of Cost and Financial Records Matters

One of the most critical sections in the CRA-3 cost audit report is the Reconciliation Statement. This section links the net profit as per financial accounts with the profit derived from cost records. Here’s why reconciling cost and financial records is not just a compliance need but a strategic business decision.

📘 CRA-3 Compliance Requirement

The MCA mandates that every company undergoing cost audit must prepare a reconciliation statement as part of Form CRA-3. This ensures that:

• No hidden costs are left out

• Both books tell the same financial story

• There’s transparency in internal and external reporting

Failure to reconcile or submit a mismatch leads to audit objections, penalties, and even rejection of the audit report.

💡 Impact on Pricing, Profit Margin, and Cost Control

In the competitive FMCG world—where margins are razor-thin—accurate cost data is gold. When your cost and financial records align, you get:

• Clear view of product-level profitability

• Ability to price SKUs strategically (premium, budget, seasonal)

• Better control over cost leakages, especially in raw material and wastage areas

Chocolate brands can understand which flavors are profitable, while biscuit manufacturers can control packaging inflation—but only if reconciliation is accurate.

⚠️ Crucial for MCA Scrutiny and Audit Readiness

If your brand gets picked for scrutiny or inspection by MCA, the first thing the officials ask for is the cost audit report and reconciliation statement.

Any mismatch could:

• Trigger deeper investigations

• Stall your statutory approvals or expansions

• Invite penalties under Section 209 and Cost Audit Rules

💡 Remember: CRA-3 is more than a form—it’s a financial x-ray of your factory. Reconciliation is the backbone of this report.

Avoiding cost audit errors and focusing on reconciliation is not just about staying compliant—it’s about building a financially sound, audit-ready, and trustworthy brand in the biscuit and chocolate segment.

📞 Need help fixing cost audit mistakes or preparing a reconciliation sheet for CRA-3?
🔗 Book a free compliance check with SSCOIndia – your expert partner for cost audit, CRA-1, and CRA-3 filings for FMCG manufacturers.

Penalties for Non-Compliance in Food Sector

Non-compliance with cost audit regulations for FMCG companies can be a costly mistake—especially in food manufacturing, where transparency and traceability are critical. Under Section 209 of the Companies Act, 2013, companies that fail to maintain proper cost records or file the CRA-3 report within the prescribed time may face serious legal consequences.

Penalty Provisions Under the Companies Act

If your food manufacturing unit (including biscuit, chocolate, snack, or confectionery brands) fails to comply with cost audit rules under CRA-1 to CRA-3, both the company and its directors/officers in default may be penalized.

• The company may be fined up to ₹50,000.

• Every officer in default may be fined individually up to ₹50,000 or face imprisonment for up to one year, or both.

• In the case of continuing default, a further fine of ₹1,000 per day may apply.

Liability of Directors and Key Officials

One of the most overlooked aspects of cost audit non-compliance is the personal liability of directors. Under MCA scrutiny, if CRA-3 filing is missed or inaccurate records are maintained, the directors can be disqualified from future appointments and held liable for misreporting.

Risks of Ignoring Cost Audit

• Rejection of financial and cost audit reports by MCA

• Scrutiny notices from Ministry of Corporate Affairs

• Disqualification of auditors or directors

• Loss of investor trust and difficulty in raising funds

• Pricing issues due to lack of reconciled cost data

Don't risk your brand’s reputation or compliance status. Cost audit isn’t just a legal mandate—it's a necessity in today’s highly regulated FMCG environment.

Why SSCOIndia is the Right Partner for Food Industry Cost Audit

When it comes to cost audit for food manufacturers, not all audit firms are equal. At SSCOIndia, we specialize in providing end-to-end cost audit services for FMCG companies, including biscuit, chocolate, and packaged food brands across India.

Industry-Specific Expertise

We have deep domain expertise in sectors such as:

• Chocolate and confectionery

• Biscuits and baked goods

• Snack foods and FMCG segments

• Frozen foods and dairy

Our team understands the nuances of SKU-wise cost tracking, batch-wise costing, segmental profitability, and regulatory compliance.

Seamless CRA-1 to CRA-3 Compliance

Our cost audit services include:

• Setting up and verifying cost records as per CRA-1 format

• Appointment of cost auditor through CRA-2 filing

• Reconciliation of financial vs cost records

• Preparation and timely submission of the CRA-3 Cost Audit Report to MCA

• Guidance on correcting past non-compliance issues

Focused Support for FMCG Compliance

With SSCOIndia, you get more than just audit services—you gain a strategic compliance partner who ensures your food brand stays on the right side of MCA rules.

✅ CTA: Book Your Food Plant’s Cost Audit Consultation Now
👉 Schedule your consultation with SSCOIndia

Conclusion

Cost audit in the food manufacturing industry is more than a compliance checklist—it's a strategic tool to drive transparency, pricing accuracy, and profitability. Whether you’re a growing biscuit brand or an established chocolate manufacturer, maintaining detailed cost records and adhering to CRA-1, CRA-2, and CRA-3 filings is non-negotiable under MCA rules.

If your brand wants to:

• Avoid penalties and scrutiny

• Achieve pricing precision

• Improve cost control and margin analysis

...then investing in a robust cost accounting system and professional cost auditors is the way forward.

✅ CTA: Contact SSCOIndia to Stay 100% Cost Audit Compliant
📞 Book your free consultation today → SSCOIndia.com

Frequently Asked Questions (FAQs)

Q1. Is cost audit mandatory for all food manufacturers in India?
No. It is mandatory only for companies that meet the turnover and net worth thresholds specified under Rule 4 of the Companies (Cost Records and Audit) Rules, 2014. For many large biscuit and chocolate manufacturers, cost audit is mandatory.

Q2. What is the cost audit threshold for FMCG companies?
For regulated sectors like food products, cost records are mandatory if the turnover exceeds ₹35 crore and cost audit is required if the turnover exceeds ₹50 crore during the preceding financial year.

Q3. How is CRA-3 filed for chocolate manufacturers?
The CRA-3 report is filed electronically via the MCA portal. It must be certified by a qualified cost auditor and submitted within 180 days from the end of the financial year.

Q4. What are the consequences of not maintaining cost records?
Failure to maintain cost records can result in monetary fines, MCA scrutiny, and disqualification of directors. It can also affect your pricing strategy and profit visibility.

Q5. Who can help with CRA-2 and CRA-3 filing for food units?
SSCOIndia offers expert support for CRA-1, CRA-2, and CRA-3 compliance, including the appointment of cost auditors and record reconciliation. Reach out today to get started.