What are the Various Elements of Cost with Example?

There are so many elements included in the cost accounting system. Here is a detailed explanation of all elements of cost.

Explain the various elements of cost with example
Explain the various elements of cost with example

Explain the Various Elements of Cost with Examples

1. What are the different elements of cost?

There are three fundamental elements of cost – Material, Labour and Expenses pertaining to any product or service.

2. What is meant by Prime cost?

Prime cost is the total of expenses incurred upon the direct material, direct labour, and direct expenses.

3. What do you mean by indirect material?

Indirect material cost – a Material cost which cannot be allocated, but which can be apportioned or absorbed by cost centres or cost units.

4. What is meant by factory cost?

Prime cost+factory overhead is known as factory cost and is also known as manufacturing cost, production cost, or works cost.

5. Give 5 examples of direct expenses?

In addition to direct material, and direct labour the other direct expenses are Royalty, Excise duty, Sub-contract cost, Carriage charges etc.

6. Define indirect expenses?

Expenses which cannot be directly allocated to particular cost centres and cost units can be apportioned or absorbed among them.

7. What is the difference between the production cost of goods sold and the cost of production?

Cost of production means Prime cost + Works overhead + office overhead while the cost of goods sold means the cost of production + selling and distribution overhead.

8. What is the difference between indirect expenses and overheads?

Indirect expenses are expenses which can be apportioned or absorbed by the cost centre while overhead means a total of indirect material cost, indirect labour cost and indirect expenses and the total amount of these three elements will be apportioned to the cost Centre.

9. State any two items which are included in cost accounts but not in the financial account?

  1. Rent your own on the building.
  2. Interest in owner’s capital.

10. What is the difference between factory overhead and factory cost?

Factory overhead means overhead pertaining to the factory while factory cost means Prime cost + Factory overhead.

11. What do you mean by Direct cost and Indirect cost?

Direct cost is the total of expenses that can be easily established with a specific work, production or service for example material used in the production of an article, wages paid, and expenses incurred upon that production whereas indirect costs are of general nature and relationship cannot be established with a particular cost centre or cost unit like rent of the building, salary of supervision etc.

And required apportionment of expenses to the cost centre.

12. Define different components of Total Cost?

  • Prime Cost = Direct Material + Direct Labour + Direct Expenses.
  • Factory Cost = Prime Cost + Factory Overhead.
  • Cost of Production = Factory Cost + Administrative Cost.
  • Cost of Sales = Cost of Production + Selling and Distribution Overheads.

13. What is meant by administrative indirect expenses?

Administrative indirect expenses are the cost incurred in formulating the policy, directing the organization and controlling the operation of an undertaking, which is not related directly to research, development, production, distribution or selling activity function.

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