This document discusses the basic concepts of cost and cost elements. It defines cost as the amount of expenditure incurred on a given thing. There are three main elements of cost: material, labor, and expenses. Material includes direct materials like raw materials and indirect materials used for maintenance. Labor includes direct labor involved in production and indirect labor. Expenses include direct expenses for a product and indirect expenses like rent and utilities. Overhead includes the indirect costs of materials, labor, and other expenses. Costs also vary in their nature between being fixed, variable, controllable, and non-controllable.

1. COST
&
COST ELEMENTS
Presentation by
Nithin Easo George
MACFAST

2. Basic Concept of Cost
Cost: Amount of expenditure incurred on a
given thing.
“An expenditure made to secure an economic
benefit, generally resources that promise to
produce revenue. The sources may have
tangible substance(material) or they may take
the form of labour and services.”
-Crowning shield

3. • “The amount of expenditure incurred or
attributed to a given thing”-ICMA
• Cost Accounting- “ the application of costing
and cost accounting principles , methods and
techniques to the science, art and practice of
a cost control. It includes the presentation of
information derived there from the purpose
of managerial decision making”

4. Elements of cost
1.Material
2.Labour
3.Expenses
1(a)Direct material:
• All type of raw material issued
• Raw material purchased
• Transferred from one cost centre to another cost
centre
• Primary packing material

5. 1(b) Indirect material cost:
• Stores used in maintenance of machinery
,building etc
• Stores used by service departments
• Material which have very low cost
2(a) Direct labour:
• Engaged on the actual production of the
product

6. • Supervision, maintenance and tool setting
• Inspectors , analysts etc
2(b) Indirect labour:
• Apportioned or absorbed by cost centres or cost
units
3(a) Direct or chargeable expense:
• Incurred on a particular product or job
• Eg :Excise duty, royalty

7. 3(b) Indirect expenses:
Eg: Rent, insurance, municipal taxes, salary of
manager , welfare expenses , power and fuel etc
4.Overhead:
Cost of indirect material and indirect labour &
other expenses
a) Factory or works overheads
Eg: Dep on P,M&B, insurance charges on fixed
assets

8. b) Office &administrative overhead:
Expenses in direction, control and
administration
Eg :Office rent, light, heat, salaries,
investigation , experiments etc
c) Selling and Distribution overhead:
Eg: Sales and office expenses, packing and free
gift, warehouse rent, warehouse staff salaries
etc

9. Nature and variability
• Fixed cost-building rent, salaries to office
staff, salary to manager , factory rent
,insurance of building , plant and machinery
etc
• Semi-variable cost-partly affected by
fluctuations in the volume of output or
turnover
• variable cost-Materials , depreciation and
repairs of machine, salesmen commission ,
fuel &packing expenses etc

10. • Controllable cost- cost of raw material is
controlled by purchasing in larger quantities
• Non-controllable cost-factory rent ,
managerial salaries , light charges etc
• Opportunity cost-Value of benefit sacrificed in
favor of an alternative course of action

11. THANK YOU