costing of apparel products
CHAPTER 12
Cost Sheet (or) Statement of Cost
ELEMENTS OF COST
Introduction
Elements of cost are necessary to have a proper classification and analysis of total cost. Thus, elements of cost provide the management with necessary information for proper control and management decisions. For this purpose, the total cost is analysed by the elements or nature of cost, i.e., material, labour and overheads. The various elements of costs may be illustrated as below:
Elements of Cost
~
t
Materials
Labour
~
~
r
Direct
l
Indirect
l
Direct
~
Other Expenses
l
Indirect
l
~
l
Indirect
Direct
1
1
Overheads
t
l
, Production or
Factory Overhead
Administration
Overhead
Selling Overhead
l
Distribution
Overhead
By grouping of the above elements of cost, the following divisions of cost are obtained:
(1)
Prime Cost
=
Direct Materials + Direct Labour + Direct Expenses
(2)
Works Cost (Factory)
=
Prime Cost + Factory Overhead
31/
Cost Sheet (or) Statement 01 Cost
(3)
Cost of Production
(4)
Cost of Sales (or) Total Cost
=
=
Factory Cost + Office and Administrative Overhead
Cost of Production + Selling and
Distribution Overhead
(I) Materials Cost
Materials Costs refer to cost of materials which are the major substances used in production and are converted into finished goods and semi-finished goods. Materials are grouped as direct materials and indirect materials.
Direct Materials: Direct materials are those that form part of a product. Raw materials, semifinished products, and finished products which can be identified with production of a product are known as direct materials. Sugar cane, cotton, oilseeds, woods etc. are examples of direct materials. The cost of materials involves conversion of raw materials into finished products.
Indirect Materials: Material costs, other than direct material cost are known as indirect material
Cost Sheet (or) Statement of Cost
ELEMENTS OF COST
Introduction
Elements of cost are necessary to have a proper classification and analysis of total cost. Thus, elements of cost provide the management with necessary information for proper control and management decisions. For this purpose, the total cost is analysed by the elements or nature of cost, i.e., material, labour and overheads. The various elements of costs may be illustrated as below:
Elements of Cost
~
t
Materials
Labour
~
~
r
Direct
l
Indirect
l
Direct
~
Other Expenses
l
Indirect
l
~
l
Indirect
Direct
1
1
Overheads
t
l
, Production or
Factory Overhead
Administration
Overhead
Selling Overhead
l
Distribution
Overhead
By grouping of the above elements of cost, the following divisions of cost are obtained:
(1)
Prime Cost
=
Direct Materials + Direct Labour + Direct Expenses
(2)
Works Cost (Factory)
=
Prime Cost + Factory Overhead
31/
Cost Sheet (or) Statement 01 Cost
(3)
Cost of Production
(4)
Cost of Sales (or) Total Cost
=
=
Factory Cost + Office and Administrative Overhead
Cost of Production + Selling and
Distribution Overhead
(I) Materials Cost
Materials Costs refer to cost of materials which are the major substances used in production and are converted into finished goods and semi-finished goods. Materials are grouped as direct materials and indirect materials.
Direct Materials: Direct materials are those that form part of a product. Raw materials, semifinished products, and finished products which can be identified with production of a product are known as direct materials. Sugar cane, cotton, oilseeds, woods etc. are examples of direct materials. The cost of materials involves conversion of raw materials into finished products.
Indirect Materials: Material costs, other than direct material cost are known as indirect material