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Elements of Cost

>> July 31, 2010

This time, I am in my city's local park with two of my cost accounting books to write some cost accounting contents. I wrote very less on cost accounting within last two years in this site. So, I am thinking to cover all important topics of cost accounting in next august. So, if you are learning cost accounting, you can also enjoy to read cost accounting from this site in the month of august 2010.

One of main aim to choose park for writing these contents, because in the cool air of park, I feel happy to create any new creation. Writing of contents is also creation. So, I also suggest to you to study in park.

Ok, now, I come on the above topic, element of cost. It is basics in cost accounting. If you know elements of cost, you can try to collect them for finding the cost of product. Element of cost provides the complete structure in which we can identify our total cost. For example, you go to market and buy one packet of tiger biscuit by paying Rs. 5. But this price's major part is the cost of packet. Manufacturer made this packet of biscuit by purchasing its raw material, producing by the help of machines and labours and delivered you by any transport means. All these things have some cost and these cost will be element of cost in simple words.

We can divide total cost in following main elements of costs:

1. Direct Cost

It is that element of cost in which we can include the cost of direct material and direct labour. If we take its total, it will be prime cost.

a) Direct Material Cost

Direct material is that material which we find in finished product and easily measures its cost. For example, for making furniture, woods are direct material and its cost will be the part of direct cost.

b) Direct Labour Cost

Direct labour is used for producing the product. We pay wages for making product to labourers and this cost will be the direct labour cost.

c) Direct expenses cost

Except direct material and direct labour, all direct expenses will be direct expenses cost.

2. Indirect Cost

c) Overheads

When we can not charge an expense directly on the product, we can say it is indirect expense or overhead. In overhead, we can include indirect material cost, indirect labour cost and other following indirect expenses.

i) manufacturing overheads
ii) administrative overheads
iii) selling overheads
iv) research and development cost

Factory rent and rates, insurance of plants or telephone bill are the main examples of overheads.

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Anonymous,  May 8, 2011 at 11:11 PM  

thanks a lot for putting the effort for writing this, helped me a lot. good work bro!

Anonymous,  September 22, 2011 at 1:17 PM  

very thankful to you bro

Anonymous,  October 26, 2011 at 4:45 AM  

thanks a lot

Anonymous,  October 28, 2011 at 5:24 PM  

nice work

Anonymous,  December 6, 2011 at 8:37 PM  

gd work bro. its very easy to understand.thanks

santosha kousalya,  January 6, 2012 at 1:56 AM  

thank you very much.good work sir.........

Anonymous,  May 1, 2012 at 4:47 AM  

its very easy to understandable

debasis das,  June 3, 2012 at 7:46 AM  

thank you sir for your written understandable concept

Anonymous,  July 7, 2012 at 6:58 PM  

thank u so much,, we need this kind of better understanding about concept, can u send your e-mail id or .com for more information.

yaipha,  November 22, 2012 at 10:10 AM  

thank u for making me to understand in a simple way..good job.

Anonymous,  January 31, 2013 at 12:50 AM  

Thanks really a lot

Anonymous,  November 29, 2014 at 8:09 PM  

It is very easy to understand. thank you so much Sir........

Anonymous,  January 26, 2015 at 9:21 AM  

nice one but so short. thanks all the same

Viola March 19, 2015 at 11:10 AM  

Great work ! Thank You Prof. Vinod Kumar

Fahad Ahmed April 6, 2015 at 1:25 AM  

thank you so much. you explain in very simple language and with great examples which helps a beginner like me to understand very clearly,.

Anonymous,  April 30, 2015 at 6:51 AM  

Thank you sir....

Karan Bairwa May 16, 2015 at 9:19 AM  

thnks a lot sir by u i got simply written material to understand..:)

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