This document defines the key elements of cost - material, labor, expenses and overheads. It provides definitions for direct and indirect costs for each element. Direct costs can be directly traced to a cost object, like the cost of materials that become part of the final product. Indirect costs cannot be directly traced to a cost object, like utilities or administrative salaries. The document also categorizes overheads as factory, office/administrative, and selling/distribution overheads.

1. RAHUL VERMA
PROJECT NAME: ELEMENTS OF COST
BBA-IB
ASM COLLEGE OF COMMERCE , SCIENCE & INFORMATION TECHNOLOGY,
PIMPRI,PUNE-411019

2. The Meaning of “Cost”?
COST: It may be defined as the monetary value of all
sacrifices made to achieve an objective (i.e. to produce
goods and services)

3. COSTING
Costing is simply cost finding.
It may be defined as “the technique and
processes of ascertaining costs”.
“Costing is classifying, recording and
appropriate allocation of expenditure for the
cost determination of the product or services”
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4. The elements of cost are the factors on the basis of which expenditure is incurred.
It may be defined as a group name of smaller costs of identical nature. Elements
of cost make the analysis of the cost easy and facilitate maximum information
regarding costs to the manufacturers
DEFINATION OF ELEMENTS OF COST

5. 4

7. MATERIAL
Cost of commodities supplied to an
■ DIRECT MATERIAL:
Generally becomes a part of finished product.
e.g. fibre, for spinning Mill, sugarcane for sugar
factory.
INDIRECT MATERIAL:
Necessary in production process but not
become integral part of product.
e.g. Oil, Grease, sand paper,
undertaking,
RAHUL VERMA 6

8. Direct material cost is the cost of
those materials that can be easily
identifiable in the finished product.
Example:
►Cost of leather in shoes. ►Cost of glass in mirror.
Indirect Material Cost is the cost which is not directly
attributable to the finished product. These costs are not
absorbed or apportioned by the cost units or cost centers
directly.
Example
Fuel or electricity needed for geneCrating power.
Materials consumed for repair work.
DIRECT MATERIAL COST INDIRECT MATERIAL COST
DIFFERENCE

9. Labor cost refers to the cost of remuneration of the workers employed in an organization. It includes the
amount of wages, salaries, perquisites, allowances etc.
DEFINATION
Example:
►Salary paid to workmen ►Commission paid to agents
LABOUR COST

10. DIFFEFENCE
DIRECT LABOUR COST
These are also known as direct wages. This
cost can be identified with and allocated to cost
centers or cost units.
Example:
►Wages paid for spinning yarn in a spinning
mill.
►Wages paid to the driver and conductor of a
bus.
INDIRECT LABOUR COST
These are also known as indirect wages. It refers to that
part of labor cost which is not directly attributable to the
cost centers or cost units.
Example:
Salary paid to the manager, Salary paid to the guard of
the office.

11. EXPENSES
DEFINATION
Expenses refer to the cost of services provided to an
undertaking and the notional costs of the use of the assets
owned by the business house.
Example: Deprecation on building, plant

12. DIFFERENCE
DIRECT EXPENSES
These expenses are also called chargeable
expenses. These expenses can be directly
identified to the cost centers or cost units.
Example:
► Carriage and freight paid on direct
materials purchased.
► Import duty
► Expenses which cannot be allocated to the
cost centers or units but can be apportioned by
them are known as overheads or indirect
expenses.
► Example:
► Rent, rates and taxes
► Repairs to machinery
► Factory lighting
► Office lighting
► Depreciation and insurance of
INDIRECT EXPENSES (OVERHEADS)

13. FACTORY
OVERHEADS
OFFICE AND
ADMINISTRATIVE
OVERHEADS
SELLING AND
DISTRIBUTION
OVERHEADS
OVERHEADS

14. OVERHEADS
OVERHEADS It includes all the indirect costs incurred in factory in respect
of manufacturing operations.
Example: Cost of lubricating oil, coal, gas and fuel, etc.
OFFICE AND
ADMINISTRATION
OVERHEADS
It includes all the indirect costs relating to direction,
guidance, management, control and administration of
business concern.
Example: Salary of general manager, insurance expenses,
etc.
SELLING
&DISTRIBUTION
OVERHEADS
These include all indirect costs which are incurred for
Promoting the sales, Retaining the customers, Providing
after sale services to the consumers
Example: advertisement, salary of sales manager etc.