It is the amount of expenditure ( actual or notional) incurred on, or attributed to a given thing.
- Elements of Costs are Direct material ( r/m, packaging) , Direct Labour ( to produce a material), Direct Expenses ( Hire of special machine, cost of rework), and overheads.
- Over heads can be factory overheads, office and administration overheads or selling and distribution overheads.
- Factory overheads consist of indirect material ( oil and waste) , indirect labour ( store keeper, time keeper) or indirect expenses ( factory rent, insurance and lightning)
- Office and Admin. Overheads consist of Indirect Material ( printer and stationary, broom, duster), Indirect Labour (office maintenance, office account, clerk) , Indirect Expenses include (rent, insurance and lightening of office )
- Selling and Distribution Overheads include indirct material ( packing material, printing and stationary), indirect labour( salary of salesman, manager) and indirect expense ( rent, insurance, ad expenses etc.)
- Components of total Cost
Direct material + direct labour + direct expenses = prime cost
prime cost + factory overheads= factory cost
factory cost + office overheads= office cost of total cost of production
office cost + selling and distribution overheads = total cost.
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