Lesson-13
Elements of Cost and Cost Sheet
Learning Objectives
• To understand the elements of cost
• To classify overheads on different bases
• To prepare a cost sheet
Elements of Cost
Raw materials are converted into finished products by a manufacturing concern with the help
of labor, plants etc. The elements that constitute the cost of manufacturing are known as
elements of cost. The elements of cost include the following:
• Material
• Labor
• Expenses
Each of these elements is again subdivided into direct and indirect material.
Direct material, direct labor and direct expenses are those which can be traced in relationship
with a particular process, job, operation or product. Indirect material, indirect labor and
indirect expenses are those which are of general nature and cannot be traced in relationship
with a particular process, operation, job or product.
Direct material
Direct labor
together constitute prime cost
Direct expenses
Indirect material
Indirect labor
of the factory together constitute factory (or works)
Indirect expenses
Prime cost + Factory (or works) overhead = Factory cost or works cost
Factory cost + Administration overhead = Cost of production
Cost of production + Selling and distribution overhead = Total cost or cost of sales
While working out the cost of sales, following details are to be kept in mind:
Opening stock of raw material
Add: Purchasing of raw materials
Less: Return to suppliers
Less: abnormal loss of materials
Rs.
***
***
***
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Rs.
Less: Closing stock of raw materials
Raw material consumed
Direct wages
Direct expenses
Prime cost
Factory overhead expenses
Add: Opening work in process
Less: sales of scraps
Less: closing work in process
Factory cost or works cost
Office and administration overhead
Cost of production
Add: Opening finished stock
Less: closing