Define Cost Elements in Accounting

A cost element is the cost of all the resources that is consumed by any of the individual. These also include the cost in the manufacture of any product. For manufacturing a product we need lots of things with which help we are able to manufacture the product correctly. So, as we all know that in the manufacturing we all convert the raw material into a useful product or finished one which everyone can use and for this we need huge labour that product raw material and of course the expenses meet that product. We can divide cost into three elements like material, labour and expenses. In the basis of these three terms in which we cost we will talk further about this.

#Direct Material- when we make new product, means when we manufacture new product we need raw material for that. This direct material also represents the raw material that is needed to manufacture a product or we can say necessary to produce any product. The cost of this raw material varies according to the output that is needed for the product. By the name you are very cleared that the direct products are needed for the product.

#Indirect Material- This indirect material refers to the raw material that we need to produce a product or manufacture a product that we in future need to sell it. But the one difference is that the product that is needed is not defined properly, means this is not direct. The cost of any of the indirect material that is used to manufacture a product doesn't varies according to product.

#Direct Labour-  It refers to the amount which the factory pay to the labours who are directly engaged to the manufacture of the goods or products. Means the wages that the workers get for their job in production of the goods. The cost of their salaries varies directly with the output, means how much output is produced in the manufacture if the output is high then the cost is higher, and vice-versa.

#Indirect Labour-  This is also same as the indirect material, indirect labour is the amount of money that any company gives to the the workers who are not directly engaged to the production or manufacture of goods, as we have talked earlier in the indirect material. In this case this also, doesn't vary directly with the level of output that is produced.

#Direct Expenses- All the direct elements are interconnected with each other, if we talk off them differently also. In these direct expenses also it is the amount that the company needed or incurred for the manufacture or production of the goods. It also varies directly varies with the amount of product that is produced or the level of output produced.

#Indirect Expenses- These are also same as all the indirect purpose that we have studied above. For calculating the cost element we all will calculate all the indirect elements separately and direct elements separately this makes the cost of the proper item. These expenses are that which are incurred by any kind of the organization. These type of expenses cannot be known accurately to anyone.

#Overhead- When we combine all the indirect elements of cost these all made us overhead. Indirect material, indirect labour and indirect expenses all together made to become overhead.

#Selling Overhead- in this all the expenses that a industry or any company that incurs in connection or combination with the sales purpose or selling overheads. Salary of all the departments like workers, salesman, and travelers every staff, money used in any commercial work like advertisements this all are counted in selling overhead. Basically, it includes all kind of works and their salary in that company.

#Distribution Overhead- By name you got some clearance related to this kind of overhead. Like distribution overhead means, the delivery or distribution of the produced, manufactured or we can say the finished products to the consumers. The wages of the delivery agents for giving products to the consumers this all comes under the distribution overhead. For example if we talk of some of the works like custom duty, loading and unloading of the products, all the delivery vans or bikes expenses and of  course the salary of all the workers that are included in the process of manufacturing of products to giving them that to consumers.

If we generally talk about the cost elements then there are three types of elements material, labour and overhead which we have talked earlier. These all three are further divided into direct and indirect method that we discussed above. When we count the cost elements then we calculate all the direct methods differently and indirect methods separately and all these then tell us the cost of the proper product produced. For effective control and managerial decision making,data is to be provided on the basis of analysed and classified costs. Cost is very much important in any field, or any company and these are divided by nature of expenditure. In order to exercise proper control of all the costs element for sound managerial decisions, the management may be provided with all of the necessary and important data and the company needs to be known to everyone. The main purpose of this cost element is that , at the end of of any kind of production or manufacture process every individual should have the knowledge and the company official should have proper knowledge of the record of cost used in production process so that at the end when any of the business official needs any kind of information regarding products manufacturing cost then they can provide them personally. Elements of cost mean the distribution of cost in smaller groups so that they can count smaller cost by group name. these all things that we have discussed so far is all about the cost elements which are mandatory in every business and to become a successful businessman. Determining cost and maintains proper record of cost balance is important in any company or business.

How to solve Cost Elements Problems & Homework in Accounting?

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