elements of cost?

Question

What do you mean by "elements of cost"? Please explain me the elements of cost in a manufacturing process. (this is for an assignment)

Answer 1

ELEMENTS OF COST: A cost is composed of three elements i.e. material , labour and expense. Each of these elements may be direct or indirect.

DIRECT COST: These are the costs which are incurred for and conveniently indentified with a particular cost unit, process or equipment. For a spinning mill, costs of rawmaterial used, packing material, freight etc are direct costs

INDIRECT COST: These are general costs and are incurred for the benefit of a number of cost units, processes or departments. These costs cannot be conveniently identified with a particular cost unit or cost centre. In a spining mill, power cost, administrative wages, managerial salaries, materials used in repairs etc are indirect costs.

The terms direct and indirect should be used in relation to the object of costing. An item of cost may be direct cost in one case and the same may be indirect in the other case.It is the nature of business and the cost unit chosen that will determine whether a particular cost is direct or indirect.

Pls click on the link for the full explanation of the above as well as on fixed, variable costs and overheads.