Cost Elements

COST ELEMENTS

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Introduction

·       These are the distinct component or category of costs which are fixed to a cost objectives

·       Also known as the factors by which expenditure is incurred

·       And also referred to a group of smaller cost which helps to calculate out the total cost to the manufacturers

 

Elements of Cost

·       Material Cost

o   Cost of the material that is supplied to the manufacturing unit to produce the finished product

§  Direct Material Cost

·       Cost of those material that can be easily identifiable in the finished product

·       Examples

o   Cost of leather in shoes

o   Cost of glass in mirror

o   Cost of iron in machinery

§  Indirect Material Cost

·       Cost which is not directly attributable to the finished product

·       Examples

o   Fuel

o   Electricity needed

o   Material used in repair work

·       Labor Cost

o   Cost of remuneration of the workers employed in an organization

o   It includes the amount of Wages, Salaries & Allowances

§  Direct Labor Cost

·       These are the direct wages and can be identified with the cost centres

·       Examples

o   Wages paid to the driver

o   Wages paid to the conductor

§  Indirect Labor Cost

·       Also known as indirect wages

·       Refers to the part of labor cost which is not directly attributable to the centers cost

·       Example

o   Salary paid to the managers

·       Expenses

o   Cost of services provided to an undertaking and the notional cost of the use of the assets own by the business house

o   Example can be deprecation on Building, Plant & Machinery

§  Direct Expenses

·       These are the chargeable expenses and can be directly identify to the cost centers

·       Examples

o   Import duty

o   Octroi duty

§  Indirect Expenses

·       Expenses which cannot be allocated to the cost centers but can be apportioned by them

·       Examples

o   Rent

o   Taxes

o   Factory lighting

 

Video Description

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