Introduction: Why Cost Records Matter for FMCG Companies

In India’s fast-paced FMCG (Fast-Moving Consumer Goods) sector, cost control and transparency aren’t just good business practices—they are legal mandates. As per the Companies (Cost Records and Audit) Rules, 2014, companies involved in the manufacturing of notified FMCG products such as hair oil, soaps, detergents, biscuits, packaged foods, cosmetics, etc., must maintain cost records as specified in Form CRA-1.

Maintaining detailed and accurate cost accounting records is critical not only for CRA-1 compliance but also for smooth filing of CRA-2 (Appointment of Cost Auditor), CRA-3 (Cost Audit Report), and CRA-4 (Filing of Cost Audit Report to MCA). Non-compliance can result in regulatory penalties and increased scrutiny.

But beyond compliance, cost records serve as a strategic tool to control prices, improve profit margins, and gain investor trust—especially in the highly competitive FMCG space where product pricing and unit economics play a pivotal role in success.

Industries Covered Under Cost Records in FMCG

Let’s look at which FMCG industries are covered under CRA-1 compliance and how thresholds apply.

a. Notified FMCG Sectors

The Ministry of Corporate Affairs (MCA) has notified several FMCG product categories under cost records maintenance and audit applicability. If you operate in any of the following sectors, you likely fall under the scope:

• Hair Oil Manufacturing

• Bath Soaps and Beauty Soaps

• Detergents (powder, bar, liquid)

• Packaged Biscuits and Cookies

• Confectionery, Chocolates & Snacks

• Ready-to-eat Packaged Foods

• Toiletries and Cosmetic Products

Each of these is subject to sector-specific cost elements and requires granular record keeping per CRA-1 formats.

b. Threshold Limits for Cost Records Applicability

Under Rule 3 of the Cost Audit Rules, 2014, a company is required to maintain cost records if:

• It’s engaged in production or manufacturing of goods listed in the regulated sector, AND

• Its overall turnover from all products and services exceeds ₹35 crore in the immediately preceding financial year.

For cost audit to apply additionally, the threshold for turnover from the individual regulated product or service must be ₹25 crore or more, and overall turnover must be ₹50 crore or more.

Hence, a medium or large FMCG company easily falls into this net.

c. Interlink with GST, ITR & Cost Audit

Cost records don’t exist in isolation. They serve as a link between financial records and tax records, particularly:

• GST filings – For proper valuation, input/output tax credit mapping, and reconciliation with cost elements like material consumption.

• Income Tax Returns (ITR) – Accurate cost data supports true profit declarations and avoids scrutiny.

• Cost Audit Reports (CRA-3) – Can’t be filed unless CRA-1-compliant records are maintained.

So, maintaining cost records is not just about MCA compliance—it also fortifies your GST and tax reporting.

Bonus: Example – Hair Oil Manufacturing

Take the example of a hair oil manufacturer with ₹60 crore annual turnover. If ₹30 crore comes from hair oil, CRA-1 maintenance is mandatory, and CRA-2 and CRA-3 filings will apply too.

This company would need to track:

• Material costs (coconut oil, packaging)

• Labor costs

• Power & fuel

• Administrative overheads

• Cost per SKU (e.g., 100ml, 200ml, 500ml bottles)

All this must be documented systematically per CRA-1 format.

How SSCOIndia Helps FMCG Brands

If you're unsure whether your FMCG business needs to comply with CRA-1 or you're struggling with record maintenance, SSCOIndia can help you with:

✅ Threshold assessment
✅ Product-wise cost record design
✅ ERP integration for auto cost capture
✅ CRA-1 to CRA-4 filing support
✅ GST & ITR reconciliation assistance

📞 Book a free compliance consultation to check your CRA-1 readiness.

Components of Cost Records Required Under CRA-1

In the fast-paced world of FMCG (Fast-Moving Consumer Goods), maintaining cost records isn't just a compliance requirement—it’s a strategic necessity. Under the Companies (Cost Records and Audit) Rules, 2014, notified FMCG sectors are required to maintain detailed cost accounting records as per Form CRA-1. Understanding what goes into these records is essential for brands manufacturing products like hair oil, packaged biscuits, cosmetics, or household cleaners.

Key Components of Cost Records under CRA-1

1. Direct Material Cost: This includes the cost of raw materials that go directly into the finished product—like palm oil or coconut oil in the case of hair oil, or flour and sugar for biscuits. These costs must be traced batch-wise and adjusted for wastage and yield.

2. Direct Labor Cost: Wages and benefits paid to workers directly involved in production must be recorded. This includes packaging-line operators or machine handlers in biscuit factories or filling operators in hair oil plants.

3. Overheads (Factory, Administrative, Selling): Indirect costs like plant electricity, depreciation of machinery, rent, and quality control expenses should be allocated across SKUs using a rational basis such as machine hours, output volume, or labor hours.

4. Utilities: Energy, water, steam, and other utilities used in production must be accurately tracked and apportioned across products. For example, in soap manufacturing, steam consumption per batch is critical for cost tracking.

5. R&D Expenses: FMCG brands invest in continuous innovation—new fragrances, improved packaging, etc. Costs associated with lab testing or trial batches must be categorized properly.

6. Packing Materials: Primary and secondary packaging costs, including bottles, labels, wrappers, and cartons, should be recorded per SKU. This is critical in pricing and logistics planning.

7. Transportation & Logistics: While not always a part of production cost, these may be required to be shown separately depending on the reporting format, especially in the context of delivered-cost models for distribution planning.

SKU-Level Costing & Batch-Wise Tracking

FMCG companies usually operate with multiple SKUs (Stock Keeping Units), such as 100ml, 250ml, and 500ml variants of the same hair oil brand. Each SKU must have its own cost structure. Batch-wise tracking is equally important, especially for perishable or regulated items like food products.

Here's a sample cost record table for a 100ml Hair Oil SKU:

Such granularity ensures accurate pricing, improved margins, and regulatory compliance.

Practical Steps to Maintain Cost Records for FMCG

Maintaining cost records is not a once-a-year exercise—it’s an ongoing operational process that needs coordination across accounts, production, procurement, and compliance teams.

Step 1: Maintain a Clear Bill of Materials (BOM)

A Bill of Materials (BOM) is the foundation of cost recording. It lists every raw and packing material that goes into each product. For example, a biscuit BOM may include flour, sugar, salt, flavors, and plastic wrappers. Ensure BOMs are regularly updated and approved.

Step 2: Generate Consumption Reports

Daily or weekly consumption reports from the production floor should be captured to calculate actual versus standard usage. This helps in identifying wastage or process inefficiencies. Consumption should be tracked per batch and linked to raw material inward entries.

Step 3: Link Cost Sheets with Financial and Stock Records

Cost data should reconcile with financial statements and stock ledgers. This includes matching material issue slips with purchase entries, verifying labor costs with payroll, and ensuring depreciation entries match fixed asset registers.

ERP systems can auto-link these if set up correctly. If not, manual matching is required—which increases the risk of human error and CRA-3 mismatches during cost audit.

Step 4: Use Templates, Software & Digital Tools

While some small FMCG firms may rely on Excel-based templates, growing businesses are better off using accounting software integrated with cost modules. Popular tools include:

• Tally Prime with Cost Centre Module

• SAP S/4HANA for FMCG sector

• Zoho Books with inventory module

• Marg ERP for small-scale FMCG manufacturers

These tools help track costs in real time, automate SKU-level costing, and ensure consistency in classification as required by CRA-1.

Step 5: Review Cost Allocation Methods

Choose rational cost allocation methods. For example:

• Utilities: Machine hours

• Admin overheads: Production volume

• Packing costs: SKU-wise weight or volume

Standardize these methods and document them. Any changes must be justifiable and updated in your cost manual or internal policy.

Step 6: Train Teams on CRA-1 Formats

The finance and operations teams should be trained in CRA-1 prescribed formats. Periodic review meetings with cost accountants and internal auditors will help spot anomalies early.

Properly maintained cost records empower FMCG businesses to:

• Make informed pricing decisions

• Identify cost leakages and improve profitability

• Avoid penalties under Companies Act for non-compliance

• Ensure timely CRA-3 and CRA-4 submissions

In a competitive FMCG market, cost control is key. CRA-1 compliance not only satisfies the law but helps you run lean, transparent, and future-ready operations.

Common Mistakes FMCG Companies Make in Cost Record Maintenance

Maintaining cost records under CRA-1 is not just a formality — it’s essential for regulatory compliance, profitability analysis, and audit readiness. Yet, many FMCG companies, especially those in fast-moving sectors like hair oil, soaps, biscuits, or packaged goods, fall into some common traps. Let’s look at the most frequent cost compliance mistakes that can cause non-compliance under Companies (Cost Records and Audit) Rules, 2014.

🔹 Inconsistent SKU-Level Reporting

In the FMCG industry, products are sold in multiple variants — different SKUs based on weight, packaging, or fragrance. One of the biggest mistakes is not maintaining cost records at the SKU level. CRA-1 mandates detailed records of costs for each unique product or unit, not just broad categories like “hair oil” or “soap.”

For example, a 100ml hair oil bottle might have a completely different cost structure than a 250ml bottle due to packaging costs, promotions, or raw material variations. Without SKU-wise costing, your company may:

• Miscalculate profitability

• Overstate or understate input costs

• Create inconsistencies in GST and MRP calculation

🔹 Manual Records Without Verification

Some companies still rely on spreadsheets or handwritten records for cost tracking. This outdated method leads to data-entry errors, missing validations, and reconciliation issues with financial statements. Manual processes also lack real-time integration with inventory, production, and procurement — increasing the risk of compliance failure during a cost audit.

🔹 Ignoring By-Product and Scrap Reporting

FMCG manufacturing, especially in soaps, cosmetics, and food packaging, generates by-products, waste, or scrap. Companies often overlook the need to record these as part of the cost structure.

By-products like leftover oil, defective biscuits, or packaging waste must be accounted for either as saleable items or adjusted against the total cost of production. Ignoring them can:

• Inflate per-unit cost

• Skew your gross margin analysis

• Lead to inaccurate tax calculations under GST

🔹 Classification Mismatches with CRA-3

The CRA-3 audit report requires synchronized reporting based on how costs were categorized in CRA-1. A frequent issue is misalignment of cost heads, where direct costs in CRA-1 appear under overheads in CRA-3 — or where certain expenses are excluded entirely.

These inconsistencies raise red flags during audits and can result in penalties or rejection of CRA-3 submissions.

Role of Cost Records in FMCG Pricing and Compliance

For FMCG companies operating in India’s competitive and regulated market, cost records are more than just a regulatory obligation — they’re a strategic business tool. Proper cost record maintenance under CRA-1 supports not only compliance but also drives accurate pricing, financial forecasting, and GST valuation.

🔸 Influence on Maximum Retail Price (MRP)

The MRP of FMCG products is often dictated by internal cost sheets. If a business doesn’t have clear SKU-wise cost data, it risks setting MRPs that are either uncompetitive or unsustainable. Here's how:

• Overpricing due to overestimated production costs leads to lower sales

• Underpricing causes margin losses, especially when discounting is applied

• Failure to reflect promotional expenses or secondary packaging costs distorts net margins

Robust cost records ensure your pricing team considers actual input costs, packing material, marketing costs, and logistics before finalizing MRP — maintaining both profitability and consumer trust.

🔸 Integral to CRA-3 Cost Audit Report

CRA-3 is the final audit report submitted to the MCA (Ministry of Corporate Affairs) — and it draws directly from CRA-1 cost records. Inadequate or inconsistent data at the record-keeping stage leads to audit queries and compliance delays.

Cost records support the auditor in verifying:

• Consumption of raw materials

• Employee costs by function (production, R&D, admin)

• Department-wise overheads

• Capacity utilization and cost per unit

With thousands of SKUs and high-volume production, FMCG companies must align every record with CRA-3's reporting format to pass cost audits seamlessly.

🔸 Essential for GST Valuation

Under GST laws, the value of goods must reflect actual cost components if the product is not sold in open market or when prices are influenced by related party transactions. CRA-1 cost records help:

• Calculate deemed value under Rule 30 or 31 of CGST Rules

• Justify transfer pricing in inter-branch or inter-company stock transfers

• Identify margin leaks or tax inefficiencies in bundled goods

Without proper costing documentation, FMCG companies can face GST penalties, tax demands, or disallowance of input credit.

🔸 Product-Wise Profitability Insights

Cost records provide critical insights into which product lines are profitable and which ones drain resources. This is particularly important in the FMCG space where:

• Low margins and high volume require precision

• Small shifts in input prices can impact profitability drastically

• Seasonal SKUs or promotional packs can skew annual forecasts

By maintaining accurate SKU-level costs, decision-makers can:

• Drop loss-making variants

• Repackage or reprice underperforming SKUs

• Invest more in profitable product lines

Conclusion:
Cost record maintenance is no longer just a compliance burden — it is the backbone of FMCG business intelligence. With the right structure, tools, and audit-readiness approach, you can turn CRA-1 from a regulatory task into a strategic asset. Avoiding common mistakes and using cost data for smarter pricing and compliance can significantly boost your FMCG company’s growth in 2025.

Best Practices for FMCG Compliance with CRA-1

For FMCG companies dealing in fast-moving consumer products like hair oil, soaps, biscuits, and packaged foods, complying with CRA-1 under the Companies (Cost Records and Audit) Rules, 2014 is not optional—it's essential. Proper compliance starts with adopting proven best practices for maintaining cost records.

Daily or Weekly Record Updates
One of the biggest mistakes FMCG companies make is updating cost data only at year-end. With fluctuating input costs and dynamic production cycles, daily or weekly updates ensure accuracy in cost allocation, timely decision-making, and smoother audits.

Department-Level Cost Tracking
FMCG units often have multiple departments: procurement, production, packing, quality, logistics, and more. Maintaining cost data by department helps trace inefficiencies, control overheads, and meet CRA-1 expectations for detailed cost segmentation.

Internal Audit Checks on Cost Data
Introduce internal cost audits quarterly to validate cost records, ensure SKU-level reconciliation, and detect anomalies in overhead allocation. These internal checks prepare you better for CRA-3 audits and statutory compliance.

Integration with Financial & Supply Chain Data
Cost data shouldn’t exist in isolation. FMCG companies must integrate CRA-1 cost records with ERP systems like Tally, SAP, or Marg ERP, linking them to stock registers, financial ledgers, and supply chain data. This avoids mismatches and ensures consistency across GST, ITR, and cost audits.

Implementing these best practices ensures your cost records are not only CRA-1 compliant but also a powerful tool for pricing, profit planning, and audit readiness.

How SSCOIndia Helps FMCG Companies with Cost Records

Struggling with cost record maintenance? You’re not alone. FMCG brands—whether new or legacy—often lack the technical cost accounting expertise or manpower to maintain CRA-1 compliant records consistently.

At SSCOIndia, we specialize in end-to-end cost compliance services tailored for FMCG companies.

✔️ Expert Assistance in CRA-1 Record Preparation

Our cost accountants and compliance experts have deep experience in CRA-1 frameworks for the FMCG sector, including nuances specific to hair oil, soaps, biscuits, chocolates, and other packaged goods.

✔️ FMCG-Specific Templates and SOPs

We provide ready-to-use costing templates, BOM formats, and SKU-level reporting structures tailored to different product lines. Whether you need to track batch-wise costing for hair oil or ingredient-level data for biscuit manufacturing, we’ve got you covered.

✔️ Tools and ERP Integration

We work with your team to integrate cost record formats into existing accounting software like Tally, SAP, Busy, or custom ERPs, ensuring seamless data flow and compliance tracking.

✔️ CRA-1 to CRA-4 Compliance

From maintaining CRA-1 records to preparing and filing CRA-2 (cost auditor appointment), CRA-3 (cost audit report), and CRA-4 (XBRL filing), we handle the entire compliance lifecycle so you don’t have to worry about deadlines, formats, or penalties.

✅ CTA:
Get your FMCG cost records audit-ready!
Book a free consultation with SSCOIndia now and ensure seamless compliance for 2025.

Conclusion

Cost compliance for FMCG companies is no longer a back-office chore—it’s a strategic necessity. With rising competition, regulatory scrutiny, and the complexity of multi-SKU production, maintaining CRA-1 cost records in 2025 is essential for every FMCG business.

From tracking raw material consumption in hair oil production to packaging costs for biscuits or soaps, structured, system-integrated cost records help you:

• Stay compliant under Companies Act rules

• Support correct GST valuation

• Enable accurate pricing

• Ensure smooth cost audit processes

If you're in the FMCG space, now is the time to act. Align your cost reporting with CRA-1 requirements and stay ahead of compliance.

FAQs on Cost Record Maintenance in FMCG

Q1. Are cost records mandatory for all FMCG companies in India?
No. Cost records under CRA-1 are mandatory for FMCG companies that cross specific revenue and turnover thresholds as defined in the Companies (Cost Records and Audit) Rules, 2014.

Q2. What is the format for cost records in packaged goods like biscuits or soaps?
The format includes raw material consumption, direct labor, utilities, overheads, packing materials, and product-wise cost sheets, maintained in line with prescribed CRA-1 templates.

Q3. Can I maintain cost records in Excel?
Yes, Excel is acceptable for initial record-keeping. However, using ERP-integrated formats or software tools (like Tally or SAP) is highly recommended for audit-readiness and linking with GST & financials.

Q4. How is CRA-1 linked with GST and cost audit reports?
CRA-1 forms the basis for CRA-3 cost audit reporting. It also helps verify input-output ratios and GST valuation per SKU, ensuring consistency across departments.

Q5. What’s the penalty for not maintaining proper cost records?
Non-compliance with CRA-1 can attract penalties under the Companies Act, 2013, including fines for the company and responsible officers, and potential audit objections during cost or GST audits.