This is the aggregate of indirect material, indirect wages and indirect expenses incurred in the factory. So it is apportioned to the output on some reasonable basis. Over heads or on cost or indirect cost cannot be identified with specific products or jobs. The aggregate of all the indirect costs i.e., Indirect Material, Indirect labour and Indirect expenses is variously termed as ‘On cost’ or ‘overhead’ or ‘Burden’. Indirect Cost or ‘Overhead’ or ‘On Cost’ or ‘Burden’: ![]() Thus prime cost or direct cost is the sum of all the elements of costs which can be specifically identified with particular products or jobs and allocated to such output. The aggregate of all the direct costs i.e., Direct Materials, Direct Labour or wages and Direct expenses is termed as- ‘Prime Cost’ or ‘Direct cost’. E.g., rent, power, lighting, depreciation, bank charges, advertising, etc. These expenses are incurred commonly for jobs and processes. Indirect expenses are expenses other than indirect material and indirect labour, which cannot be directly identified with units of output, job, process or operation. The total cost of production can be found without such analysis, and in many instances an average unit cost could be obtained but none of the advantages of an analysed cost would be available”. “A classification has to be made to arrive at the detailed costs of departments, production orders, jobs or other cost units. Overheads.Įlements of Cost in Cost Accounting: Direct Material Cost, Direct Wages, Direct Expenses, Indirect Materials and Overheads Elements of Cost Accounting – 4 Important Elements: Materials, Labour, Expenses and Overheads This element wise classification of cost is based on the nature of the cost itself. In this context the total cost of manufacture is classified under three elements called the elements of cost. ![]() Each of these three elements can be direct and indirect, i.e., direct materials and indirect materials, direct labour and indirect labour, direct expenses and indirect expenses. A cost is composed of three elements – Material, Labour and Expenses. Everything you need to know about the elements of cost in Cost Accounting.
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