Cost Sheet (or) Statement of Cost
ELEMENTS OF COST
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
, Production or
By grouping of the above elements of cost, the following divisions of cost are obtained: (1)
Direct Materials + Direct Labour + Direct Expenses
Works Cost (Factory)
Prime Cost + Factory Overhead
Cost Sheet (or) Statement 01 Cost
Cost of Production
Cost of Sales (or) Total Cost
Factory Cost + Office and Administrative Overhead
Cost of Production + Selling and
(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. Indirect materials cannot be identified with a particular unit of cost or product. Indirect materials are indirectly used for producing the products. Lubricating oil, consumable stores, fuel, design, layout etc. are examples of indirect material cost.
(II) Labour Cost
In actual production of the product, labour is the prime factor which is physically and mentally involved. The payment of remuneration of wages is made for their effort. The labour costs are grouped into (a) Direct Labour and (b) Indirect Labour.
(a) Direct Labour: Direct labour cost or direct wages refer to those specifically incurred for or can be readily charged to or identified with a specific job, contract, work order or any other unit of cost are termed as direct labour cost. Wages for supervision, wages for foremen, wages for labours who are actually engaged in operation or process are examples of direct labour cost. (b) Indirect Labour: Indirect labour is for work in general. The importance of the distinction lies in the fact that whereas direct labour can be identified with and charged to the job, indirect labour cannot be so charged and has therefore to be treated as part of the factory overheads to be included in the cost of production. Examples are salaries and wages of supervisors, store keepers, maintenance labour etc. (III) Expenses
All expenses are other than material and labour that are incurred for a particular product or process. They are defined by ICMA as "The cost of service provided to an undertaking and the notional cost of the use of owned assets." Expenses are further grouped into (a) Direct Expenses and (b) Indirect Expenses. ,(a) Direct Expenses: Direct expenses which are incurred directly and identified with a unit of output or process are treated as direct expenses. Hire charges of special plant or tool, royalty on product, cost of special pattern etc. are the examples of direct expenses. (b) Indirect Expenses: Indirect expenses are expenses other than indirect materials and...
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