Five Elements Of Cost
2.1.1 Elements of Cost
For proper control and managerial decision making, management needs to be given necessary data so that costs are analysed and classified. The elements of cost are used to examine the total cost. The main elements of cost are materials, labour and other expenses.
Figure 2.1.1: Elements of Cost
(i) Direct Material Cost
Material cost is defined by CIMA, the UK as “The value of commodities supplied to an undertaking”.
There are two types of material:
• Direct Materials: The material cost that can be conveniently identified with and allocated to cost units is called direct material cost. For example, Clay in bricks, Leather in shoes, Steel in machines, Cloth in garments, Timber in furniture, etcand more.
• Indirect Materials: The materials thatwhich cannot be conveniently identified with individual cost
…show more content…
• Indirect expenses: Complete indirect costs, other than indirect materials and indirect labour costs are termed as indirect costs. For example, Rent and Rates, Depreciation, Lighting and Power, Advertising, Insurance repairs, etcand more.
Prime Cost:
The total of direct material cost, direct employment cost and straightforward expense areis termed as the original cost.
(iv) Overheads
Overheads are also known as ‘on cost, additional cost, burden, non-productive cost’.
• “Overhead is the aggregate of indirect materials, indirect wages and incidental expenses” -– CIMA, London
• “Overhead may be defined as the cost of indirect materials, indirect labour and such other expenses, including services as cannot conveniently be charged directly to specific cost units. Alternatively, overheads are all expenses other than direct costs” –- Wheldon
• “Overheads are those costs which do not result from existence of individual cost units” -– Harper
• “Overhead costs are the operating costs of a business enterprise which cannot be traced
Eswc Week 4 Clc Case
498 Words | 2 PagesThese costs can be both personnel and non-personnel and both direct and
Sec/280 Week 9 Final Paper
532 Words | 3 Pages2. Are there any limitations or restrictions under the Internal Revenue Code relating to deducting business expenses like rent, advertising, supplies, salaries, or cost of goods sold?
Finance Case Study: The Wilkerson Company
895 Words | 4 PagesThe two factors that demonstrate that the traditional system may produce estimates that are different than that of the unit cost are high overheads and indirect cost
En1320 Unit 2 Case Study
697 Words | 3 PagesCurrently, the cars manufactured involve automated as well as manual processes of production. The overhead costing
Home Depot Financial Analysis
365 Words | 2 PagesThis drastic change occurred because of variable and fixed costs. Due to these costs, sales decline in small percentages which affect a more significant decline in profit. Furthermore, incurred cost within Home Depot is broken down into two different types. These two different types are variable costs and fixed costs.
The True Cost
1006 Words | 5 PagesThe film “The True Cost” directed by Andrew Morgan, goes into great detail on the global world of fast fashion, and how it affects the global apparel industry. The countries in which the clothes are produced, there are significant issues with labour regulations, all to accommodate North America’s demand for fast fashion consumerism. The global North consumers demand for fast fashion have effects globally, leaving workers underpaid and exploited. Through management methods and outsourcing, firms search for the lowest costs for the consumer, without concern about the consequences for workers. Relocating the garment industry to the global South can arguably be the downfall of workers as they are sacrificing their lives for their job.
Ace Fertilizer Case Study
1118 Words | 5 PagesAbby prefers to allocate indirect cost using activity-based costing for these orders, but recognizes that not all costs are driven by volume of output. Abby prepares a
Daktronics Case Study
1420 Words | 6 PagesAs lean manufacturing tries to eliminate wasted space, this proves to be an advantage to implementing it within your
Lincoln Electric Case Study Summary
1216 Words | 5 PagesAn Analysis of Lincoln Electric Company’s Culture through Assessment of its Case Study After thorough investigation of the Lincoln Electric Company’s (LEC) Harvard Case Study, certain understanding and reflections may be made about the company’s culture from a multi-faceted perspectives such as the visual aspects of culture and its maintenance dynamics as observed in the textbook’s Chapter 8. ( Carpenter, Taylor, & Erdogan, 2009) Continuing Influence of Founders at Lincoln Electric It is easily evident from the case study that the diverse aspects of LEC’s operations --- from investors, employees, and customers to how the senior management conducts and approaches its business --- all reflect the philosophy, vision, and ideals of its founders:
Harley Davidson Case Study Solution
813 Words | 4 PagesDirect labor which is a human resource will be recalculated on the basis of sales of 3 million bikes. It may happen to produce 1 million products, they require 50000 employees but to produce 3 million products they require 200000 employees and to be on safer size, 10% extra labor will be recruited which will give a total of 220000 employees. Therefore it is clearly understood that the company can prepare their Labor Requirement budget directly from the sales budget. The same concept will apply to overhead and capital expenditures because overheads are directly proportional to the production and if the sales are high, product will automatically are high. Similarly quantity requirement will lead to the requirement of machines.
Advantages And Disadvantages Of Plant-Wide Allocation Methods
750 Words | 3 PagesIn many businesses, overhead costs are a significant proportion of total costs, and management needs to understand the drivers of overhead costs in order to manage the business properly. Overhead costs can be controlled by managing cost drivers. It can be applied to derive realistic costs in a complex business environment. ABC can be applied to all overhead costs, not just production overheads.
Transaction Cost Theory, Resource-Based Theory and Relational Exchange Theory: A Comparison
1050 Words | 5 PagesLiterature Review on Fundamental Theories IT outsourcing is a topic that not in short of theories. During the last 3 decades, a large amount of empirical work across the last three decades has been guided by three main categories of theories. Those theory groups further developed into different schools which are the base for analyzing the impacts of outsourcing activities. In this research, empirical work based on three most important theories from economic (Transaction cost theory), strategic (Resource- based theory) and social category( relational/ social theories ) were selected for an in depth discussion. No claims are made that any one theory outperforms others.
The Pros And Cons Of Transaction Cost Theory
1763 Words | 8 PagesIn this section the author describes the theories that will support the analysis of information. In order to construct a theoretical background for the study the author chose to describe theories regarding the selection of countries. 5.1 Transaction costs theory Transaction cost theory was developed by Coase (1937) and then re-analyzed by Williamson (1979). The theory explains why companies exist and expand their activities to external environments finding out that ‘’A Transaction cost occurs when a good or service is transferred across a technologically separable interface’’.
Swot Analysis: SWOT Analysis Of Huqvarna Group
1848 Words | 8 PagesRoughly 42% of a sale price covers the cost of materials to make the product. These materials include either direct materials or materials or parts that are sourced from other providers, including engines. Engines are the most expensive and largest cost of materials for the Group. For example, for some basic law mowers, the engine can account for as much as 50% of the total product cost. Shared efforts by R&D and purchasing are focused on reducing costs in this area by 10% by 2016.
Roles Of Money In Macroeconomics Essay
1772 Words | 8 PagesROLE OF MONEY IN MACROECONOMICS 1. Introduction Money can be seen as the medium of exchange which is acceptable while transaction is being undertaken between two parties. Some of the common forms of money are: - Commodity money: This is when the value of the good represents its value in terms of money like gold or silver. - Fiat money: This is when the value of the good is less than the value it represents - Bank money: It is the accounting credits that can be used by the depositor Money serves a variety of crucial functions in the economy and this is why it has gained an unparalleled influence in the matters of economy at micro as well as macro levels. Some of the features of money that make it so important for any economy are as follows:
More about Five Elements Of Cost
Eswc Week 4 Clc Case
498 Words | 2 PagesSec/280 Week 9 Final Paper
532 Words | 3 PagesFinance Case Study: The Wilkerson Company
895 Words | 4 PagesEn1320 Unit 2 Case Study
697 Words | 3 PagesHome Depot Financial Analysis
365 Words | 2 PagesThe True Cost
1006 Words | 5 PagesAce Fertilizer Case Study
1118 Words | 5 PagesDaktronics Case Study
1420 Words | 6 PagesLincoln Electric Case Study Summary
1216 Words | 5 PagesHarley Davidson Case Study Solution
813 Words | 4 PagesAdvantages And Disadvantages Of Plant-Wide Allocation Methods
750 Words | 3 PagesTransaction Cost Theory, Resource-Based Theory and Relational Exchange Theory: A Comparison
1050 Words | 5 PagesThe Pros And Cons Of Transaction Cost Theory
1763 Words | 8 PagesSwot Analysis: SWOT Analysis Of Huqvarna Group
1848 Words | 8 PagesRoles Of Money In Macroeconomics Essay
1772 Words | 8 Pages