Cost - COST : MEANING AND ITS ELEMENTS The term cost means...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
COST : MEANING AND ITS ELEMENTS The term ‘cost’ means the amount of expenses [actual or notional] incurred on or attributable to specified thing or activity. Cost is ‘measurement in monetary terms of the amount of resources used for the purpose of production of goods or rendering services. To get the results we make efforts. Efforts constitute cost of getting the results. It can be expressed in terms of money; it means the amount of expenses incurred on or attributable to some specific thing or activity. The term cost is used in this very form. In reference to production/manufacturing of goods and services cost refers to sum total of the value of resources used like raw material and labour and expenses incurred in producing or manufacturing of given quantity. Elements of cost Cost of production/manufacturing consists of various expenses incurred on production/manufacturing of goods or services. These are the elements of cost which can be divided into three groups : Material, Labour and Expenses. Material To produce or manufacture material is required. For example to manufacture shirts cloth is required and to produce flour wheat is required. All material which becomes an integral part of finished product and which can be conveniently assigned to specific physical unit is termed as “Direct Material”. It is also described as raw material, process material, prime material, production material, stores material, etc. The substance from which the product is made is known as material. It may be in a raw or manufactured state. Material is classified into two categories: Direct Material Indirect Material Direct material Direct Material is that material which can be easily identified and related with specific product, job, and process. Timber is a raw material for making furniture, cloth for making garments,
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
sugarcane for making sugar, and Gold/ silver for making jewellery, etc are some examples of direct material. Indirect material Indirect Material is that material which cannot be easily and conveniently identified and related with a particular product, job, process, and activity. Consumable stores, oil and waste, printing and stationery etc, are some examples of indirect material. Indirect materials are used in the factory, the office, or the selling and distribution department. Labour
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

Cost - COST : MEANING AND ITS ELEMENTS The term cost means...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online