Presented By: Akansh Gupta Rohit Kumar

ØThe amount which is incurred in production of product. A Cost is composed of three elements: ØMaterial Cost Ø ØLabour Cost Ø ØExpenses


ØIt is of two types: üDirect Material costs ü üIndirect Material costs .MATERIAL COST ØIt is the cost of commodities and material used by the organization.

.DIRECT MATERIAL ØDirect Material indicates that material which can be identified with the individual cost center. üLeather in shoes. Ø Øwhich becomes an integral part of the finished goods. ØFor example: Ø üCotton used in a textile mill. üTimber in furniture.

Ø ØIt does not becomes an integral part of finished goods. Ø ØFor example: üLubricating oil üCoal üStationery Material .INDIRECT MATERIAL ØIndirect Material indicates that material which cannot be identified with the individual cost center. Ø ØThis material assists the manufacturing process.

LABOUR COST ØIt is the cost of remuneration paid to the employees of the organisation. ØIt is of two types: üDirect Labour cost üIndirect Labour cost .

DIRECT LABOUR ØDirect Labour costs consists of wages paid to workers directly engaged in converting raw material into finished goods. ØFor example: üCarpenter üTailor üMachine operator .

INDIRECT LABOUR ØIndirect labour are not engaged in the manufacturing process but only assist or help in production operations ØFor example: üSupervisor üCleaner üPeon üWatchman .

ØIt is of two types: üDirect Expenses costs ü üIndirect Expenses costs .EXPENSES ØIt is the cost of services provided to the organization and the notional cost of assets owned.

which can be identified with the individual cost center. ØFor example: üHire charges for machinery. ü üCost of patent rights. .DIRECT EXPENSES ØDirect Expenses are those expenses. ü üDepreciation or hire of a plant used on a contract at site.

INDIRECT EXPENCES ØIndirect Expenses are those expenses. ØFor example: üRent üInsurance üLighting üRepairs . which cannot be identified with the individual cost centers.

Indirect labour Cost.ØThe aggregate of direct material cost. direct labour Cost. direct expenses is termed as Prime cost ØThe aggregate of Indirect material cost. Indirect expenses is termed as Overheads. .

OVERHEAD Overhead=Indirect Material + Indirect Labour + Indirect Expenses ØOverhead are divided into three groups as follows: üProduction Overhead üOffice and administration overhead üSelling and distribution overhead .

The classification of overheads can be shown as below: .

Ø ØIndirect Expenses :. etc. repair and maintenance of plant.wages of factory sweeper. etc.coal. Ø ØThis overhead mainly concerned with the production of finished goods. Ø ØIndirect Labour:. grease.PRODUCTION OVERHEAD ØIt is also Known as factory overhead.factory rent. oil. works overhead and manufacturing overhead. ØIndirect Material :. wages of factory watchman. . etc.

e.OFFICE OVERHEAD ØThis is the indirect expenditure incurred in general administrative function i. in formulating policies. planning. Ø ØIndirect Expenses :. saleryof managing director. ØIndirect Material :. .office rent. directing. postage. etc. Ø ØThis overhead have no direct connection with production or sales.salery of office staff. etc. etc. ØIndirect Labour :. legal expence.stationery used in office.

etc. Ø ØDistribution cost includes all expenditure incurred from the time the product is completed until it reaches its destination. samples. . For example advertisement cost.SELLING OVERHEAD ØSelling overhead is the cost of promoting sales and retaining customer. For example carriage outward.

rent of warehouse. saleryof sales office staff.Contd. ØIndirect Labour :.. Ø ØIndirect Expenses :. . etc.advertising.salery of sales manager. oil. ØIndirect Material :. travelling expenses. greace. etc. etc.Packing material.


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