This document defines key cost accounting terms and concepts. It discusses that cost is the monetary value of all resources sacrificed to achieve an objective. There are three major elements of cost: materials, labor, and expenses. Costs are further broken down into direct and indirect costs. Direct costs can be traced to a specific cost object, while indirect costs cannot. The document also outlines different levels of costs including prime cost, factory cost, cost of production, and cost of sales. It provides manufacturing companies as an example, detailing the various costs that make up each level.

1. S.K.SONI 1
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)

2. S.K.SONI 2
Product Costs
The cost
assigned to
goods that were
either purchased
or manufactured
for resale.
Product Costs
The cost
assigned to
goods that were
either purchased
or manufactured
for resale.
Period Costs
Costs that are
identified with
the period in
which they are
incurred.
Period Costs
Costs that are
identified with
the period in
which they are
incurred.
The Meaning of “Cost”?
The sacrifice
made, usually
measured by the
resources given
up, to achieve a
particular
purpose.
The sacrifice
made, usually
measured by the
resources given
up, to achieve a
particular
purpose.

3. S.K.SONI 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”

4. S.K.SONI 4
ELEMENTS OF COST
There are 3 major elements of costs:There are 3 major elements of costs:
Materials
commodities
supplied to
undertaking.
Materials
commodities
supplied to
undertaking.
Labour
The cost of
paying employees
includes salaries,
bonus, etc.
Labour
The cost of
paying employees
includes salaries,
bonus, etc.
Expenses
Cost other than
material &
labour
Expenses
Cost other than
material &
labour

5. S.K.SONI 5
ELEMENTS OF COST
There are 3 major
elements of costs
MATERIAL LABOUR EXPENSES
Direct
Material
Indirect
Material
Direct
Labour
Direct
Labour
Direct
Expenses
Indirect
Expenses

6. S.K.SONI 6
 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,
MATERIAL
Cost of commodities supplied to an undertaking.

7. S.K.SONI 7
LABOUR
Cost of remuneration (expenses on wages) includes salaries,
bonuses
 DIRECT LABOUR
Wages paid to employees engage in converting raw
material into finished product.
e.g. sider,
 INDIRECT LABOUR
Wages paid to employees those who are not engage
in production process.
e.g. Security Guards.

8. S.K.SONI 8
EXPENSES
All the cost other than material and labour are termed as
expenses.
 DIRECT EXPENSES
Expenses which are specifically incurred on particular
job/product.
e.g. Power, design cost, etc.
 INDIRECT EXPENSES
All the indirect cost other than indirect material and
indirect labour are termed as indirect expenses.
e.g. Telephone bill, Rent, Insurance, etc.

9. S.K.SONI 9
PRIME COST
PRIME COST
DIRECT
MATERIAL
DIRECT
LABOUR
DIRECT
EXPENSES

10. S.K.SONI 10
OVERHEADS
OVERHEADS
INDIRECT
MATERIAL
INDIRECT
LABOUR
INDIRECT
EXPENSES

11. S.K.SONI 11
OVERHEADS
OVERHEADS
PRODUCTION
OVERHEAD
OFFICE & ADMN.
OVERHEAD
SELLING & DIST.
OVERHEAD

12. S.K.SONI 12
TOTAL COST
OVERHEADS
Indirect Material
Indirect Labour
Indirect Expenses
PRIME COST
Direct Material
Direct Labour
Direct Expenses

13. S.K.SONI 13
Manufacturing Companies
Prime Costs include:Prime Costs include:
Direct
Materials
Direct
Materials
Direct
Labor
Direct
Labor
Direct
Expenses
Direct
Expenses

14. S.K.SONI 14
Manufacturing Companies
Factory Costs include:Factory Costs include:
Direct
Materials
Direct
Materials
Direct
Labor
Direct
Labor
Direct
Expenses
Direct
Expenses
Production
Overhead
+

15. S.K.SONI 15
Manufacturing Companies
Cost of Production include:Cost of Production include:
Direct
Materials
Direct
Materials
Direct
Labor
Direct
Labor
Direct
Expenses
Direct
Expenses
Production
Overhead
+
Office & Admn.
Overheads
+

16. S.K.SONI 16
Manufacturing Companies
Cost of sales include:Cost of sales include:
COST OF PRODCOST OF PROD SELLING & DIST.
OVERHEADS
SELLING & DIST.
OVERHEADS+

17. S.K.SONI 17
MaterialsMaterials LabourLabour
ExpensesExpenses
Indirect laborIndirect labordirect labordirect labor
direct materialdirect material Indirect
material
Indirect
material Indirect expIndirect expdirect expdirect exp