Various Elements of Cost Used in Cost Accounting

          We often discuss about the cost accounting and we will end up with the various questions in our head without answer or answers to very few questions. So today I decided to answer one such question that’s “What are the Elements of Cost”. Today in this article we will learn and will try to understand the elements of cost.

ELEMENTS OF COST

Elements of Cost

          From the above chart of elements of cost total cost can be divided mainly into Material cost, Labor cost and Expenses. Further Material cost can be divided into direct material cost and indirect material cost, Labor cost can be divided into direct labor cost and indirect labor cost and Expenses into direct expenses and indirect expenses.

          Now let’s discuss each one of the cost and try to understand it below.

§  Total Cost:

Total cost refers to the cost of production by adding up all the expenses to produce a product or purchase an investment or acquisition of plant and machinery. Total cost is mainly classified into material cost, Labor cost and Expenses.

§  Material Cost:

Material Cost refers to cost incurred in procurement of the raw material, consumable stores and so on. The material cost is further divided into two types of material cost namely direct material cost and indirect material cost.

·        Direct Material Cost :

Direct Material cost refers to cost of material which can be identified in the final product produced. For instance, wood used in furniture.

·        Indirect Material Cost:

Indirect Material cost refers to material cost which can be identified in the final product produced but cannot be directly related to the product produced. For Instance, Nails and threads used in preparing shoe.

§  Labor Cost:

Labor cost refers to the remuneration paid to labor such as wages, salaries, commission and so on. The labor cost can be further divided into direct labor cost and indirect labor cost.

·        Direct Labor Cost:

Direct labor Cost refers to the remuneration paid to the labors who are involved directly in the production activities.

·        Indirect Labor Cost:

Indirect Labor cost refers to the remuneration paid to the workers who are not directly involved in the production activities. For instance, wages paid to office workers.

§  Expenses:

Expenses refer to the cost incurred during production other than material and labor cost by a business. Expenses are further divided into direct and indirect expenses.

·        Direct Expenses:

Direct Expenses refers to the cost which incurred directly and can be easily identified by the cost centre or cost unit. For Instance, Production Expenses

·        Indirect Expenses:

Indirect Expenses as known as fixed expenses. Indirect or fixed expenses refer to those expenses that don’t vary with respect to the quantity produced.

Now let us see some of the examples for the above elements of cost below in the chart.

Particulars	Elements of Cost
Wages paid to sweepers, wages paid to maintenance workers, Nails used in Shoe, Oils used for lubricating machines, Factory Stationary, Directors fees (Factory), Unproductive Wages, Estimation Expenses, Water Supply, Haulage, Experimental Expenses, Sale of Scrap, Convertible Materials, Welfare Expenses and more.	Factory Overhead
Salesman Commission, Agent Commission, Warehouse Salary, Discount on Sales, Bad debts, Travelling Expenses, Depreciation on Delivery Van, Upkeep of Delivery Van, Material used in selling a product and more.	Selling and Distribution Overhead
Paper used for printing paper, Bags used for Packaging, Material used in Packaging and more.	Direct Material Cost
Wages paid to piece workers and more.	Direct Labor Cost
Bank Charges, General Expenses, Legal Expenses, Counting house salaries, Establishment Expenses, Royalty, Branch office Expenses and more.	Office Overhead
Special design, Carriage on Material, Chargeable Expenses, Exercise Duty and more.	Direct Expenses