CCS1 MLANING AND I1S LLLMLN1S

1he Lerm 'cosL' means Lhe amounL of expenses acLual or noLlonal lncurred on or aLLrlbuLable Lo speclfled
Lhlng or acLlvlLy As per lnsLlLuLe of cosL and work accounLs (lCWA) lndla CosL ls 'measuremenL ln moneLary
Lerms of Lhe amounL of resources used for Lhe purpose of producLlon of goods or renderlng servlces 1o geL
Lhe resulLs we make efforLs LfforLs consLlLuLe cosL of geLLlng Lhe resulLs lL can be expressed ln Lerms of
money lL means Lhe amounL of expenses lncurred on or aLLrlbuLable Lo some speclflc Lhlng or acLlvlLy 1he
Lerm cosL ls used ln Lhls very form ln reference Lo producLlon/manufacLurlng of goods and servlces cosL
refers Lo sum LoLal of Lhe value of resources used llke raw maLerlal and labour and expenses lncurred ln
produclng or manufacLurlng of glven quanLlLy
lollowlng are Lhe feaLures of Lhe varlous elemenLs of cosL WrlLe Lhe name
of Lhe elemenL agalnsL each sLaLemenLs
(l) A subsLance from whlch producL ls made
(ll) maLerlal whlch can be ldenLlfled and relaLed wlLh speclflc producL
(lll) labour whlch Lakes acLlve and dlrecL parL ln Lhe producLlon of Lhe
commodlLy
(lv) expenses LhaL are dlrecLly and wholly allocaLed Lo speclflc cosL cenLre
L|ements of cost
CosL of producLlon/manufacLurlng conslsLs of varlous expenses lncurred on producLlon/manufacLurlng of
goods or servlces 1hese are Lhe elemenLs of cosL whlch can be dlvlded lnLo Lhree groups MaLerlal Labour
and Lxpenses
1 Mater|a| Labour Lxpenses
1o produce or manufacLure maLerlal ls requlred lor example Lo manufacLure shlrLs cloLh ls requlred and Lo
produce flour wheaL ls requlred All maLerlal whlch becomes an lnLegral parL of flnlshed producL and whlch
can be convenlenLly asslgned Lo speclflc physlcal unlL ls Lermed as ulrecL MaLerlal" lL ls also descrlbed as
raw maLerlal process maLerlal prlme maLerlal producLlon maLerlal sLores maLerlal eLc 1he subsLance from
whlch Lhe producL ls made ls known as maLerlal lL may be ln a raw or manufacLured sLaLe MaLerlal ls
classlfled lnLo Lwo caLegorles ulrecL MaLerlal and lndlrecL MaLerlal
D|rect mater|a|
ulrecL MaLerlal ls LhaL maLerlal whlch can be easlly ldenLlfled and relaLed wlLh speclflc producL [ob and
process 1lmber ls a raw maLerlal for maklng furnlLure cloLh for maklng garmenLs sugarcane for maklng
sugar and Cold/sllver for maklng [ewellery eLc are some examples of dlrecL maLerlal
Ind|rect mater|a|
lndlrecL MaLerlal ls LhaL maLerlal whlch cannoL be easlly and convenlenLly ldenLlfled and relaLed wlLh a
parLlcular producL [ob process and acLlvlLy Consumable sLores oll and wasLe prlnLlng and sLaLlonery eLc
are some examples of lndlrecL maLerlal lndlrecL maLerlals are used ln Lhe facLory Lhe offlce or Lhe selllng
and dlsLrlbuLlon deparLmenL


Labour
Labour ls Lhe maln facLor of producLlon lor converslon of raw maLerlal lnLo flnlshed goods human resource
ls needed and such human resource ls Lermed as labour Labour cosL ls Lhe maln elemenL of cosL ln a
producL or servlce Labour can be classlfled lnLo Lwo caLegorles ulrecL Labour and lndlrecL labour
D|rect |abour
Labour whlch Lakes acLlve and dlrecL parL ln Lhe producLlon of a commodlLy ulrecL labour ls LhaL labour
whlch can be easlly ldenLlfled and relaLed wlLh speclflc producL [ob process and acLlvlLy ulrecL labour cosL
ls easlly Lraceable Lo speclflc producLs ulrecL labour cosL sare speclally and convenlenLly Lraceable Lo speclflc
producLs ulrecL labour varles dlrecLly wlLh Lhe volume of ouLpuL ulrecL labour ls also known as process
labour producLlve labour operaLlng labour dlrecL wages manufacLurlng wages eLc CosL of wages pald Lo
carpenLer for maklng furnlLure cosL of a Lallor ln produclng readymade garmenLs cosL of washer ln dry
cleanlng unlL are some examples of dlrecL labour
Ind|rect |abour
lndlrecL labour ls LhaL labour whlch can noL be easlly ldenLlfled and relaLed wlLh speclflc producL [ob
process and acLlvlLy lL lncludes all labour noL dlrecLly engaged ln converLlng raw maLerlal lnLo flnlshed
producL lL may or may noL vary dlrecLly wlLh Lhe volume of ouLpuL Labour employed for Lhe purpose of
carrylng ouL Lasks lncldenLal Lo goods or servlces provlded ls lndlrecL labour lndlrecL labour ls used ln Lhe
facLory Lhe offlce or Lhe selllng and dlsLrlbuLlon deparLmenL Wages of sLorekeepers Llmekeepers salary
of works manager salary of salesmen eLc are all examples of lndlrecL labour cosL
3 Lxpenses
All cosL lncurred ln Lhe producLlon of flnlshed goods oLher Lhan maLerlal cosL and labour cosL are Lermed as
expenses Lxpenses are classlfled lnLo Lwo caLegorles ulrecL expenses and lndlrecL expenses
D|rect expenses
1hese are expenses whlch are dlrecLly easlly and wholly allocaLed Lo speclflc cosL cenLre or cosL unlLs All
dlrecL cosL oLher Lhan dlrecL maLerlal and dlrecL labour are Lermed as dlrecL expenses ulrecL expenses are
also Lermed as chargeable expenses Some examples of Lhe dlrecL expenses are hlre of speclal machlnery
cosL of speclal deslgns moulds or paLLerns feed pald Lo archlLecLs surveyors and oLher consulLanLs lnward
carrlage and frelghL charges on speclal maLerlal CosL of paLenLs and royalLles
1 CosL cenLre means a locaLlon person or lLem of equlpmenL or group of Lhese for whlch cosLs may be
ascerLalned and used for Lhe purpose of cosL conLrol
2 CosL ob[ecL ls anyLhlng for whlch a separaLe measuremenL of cosL ls deslred lL may be a producL servlce
pro[ecL or a cusLomer
Ind|rect expenses
1hese expenses cannoL be dlrecLly easlly and wholly allocaLed Lo speclflc cosL cenLre or cosL unlLs All
lndlrecL cosLs oLher Lhan lndlrecL maLerlal and lndlrecL labour are Lermed as lndlrecL expenses 1hus
lndlrecL Lxpenses lndlrecL cosL lndlrecL maLerlal lndlrecL labour
lndlrecL expenses are LreaLed as parL of overheads 8enL raLes and Laxes of bulldlng repalr lnsurance and
depreclaLlon on flxed asseLs eLc are some examples of lndlrecL expenses

CVLknLADS
1he Lerm overhead has a wlder meanlng Lhan Lhe Lerm lndlrecL expenses Cverheads lnclude Lhe cosL of
lndlrecL maLerlal lndlrecL labour and lndlrecL expenses 1hls ls Lhe aggregaLe sum of lndlrecL maLerlal
lndlrecL labour and lndlrecL expenses
Cverhead lndlrecL maLerlal + lndlrecL labour + lndlrecL expenses
Cverheads are classlfled lnLo followlng Lhree caLegorles
alacLory/works/ producLlon overheads
bCfflce and admlnlsLraLlve overheads
cSelllng and dlsLrlbuLlon overheads
a Iactory]works overheads
All lndlrecL cosLs lncurred ln Lhe facLory for producLlon of goods ls Lermed as facLory/works overheads Such
cosLs are concerned wlLh Lhe runnlng of Lhe facLory or planL 1hese lnclude lndlrecL maLerlal lndlrecL labour
and lndlrecL expenses lncurred ln Lhe facLory Some examples are as follows
Ind|rect mater|a|s
(l) Crease oll lubrlcanLs coLLon wasLe eLc
(ll) Small Lools brushes for sweeplng sundry supplles eLc
(lll) CosL of Lhreads gum nalls eLc
(lv) Consumable sLores
(v) lacLory prlnLlng and sLaLlonery
Ind|rect wages
(l) Salary of facLory manager foremen supervlsors clerks eLc
(ll) Salary of sLorekeeper
(lll) Salary and fee of facLory dlrecLors and Lechnlcal dlrecLors
(lv) ConLrlbuLlon Lo LSl l Leave pay eLc of facLory employee
Ind|rect expenses
(l) 8enL of facLory bulldlngs and land MCuuLL 68
(ll) lnsurance of facLory bulldlng planL and machlnery
(lll) Munlclpal Laxes of facLory bulldlng
(lv) uepreclaLlon of facLory bulldlng planL and machlnery and Lhelr repalrs
and malnLenance charges
(v) ower and fuel used ln facLory
(vl) lacLory Lelephone expenses
b Cff|ce and adm|n|strat|ve overheads
1hese expenses are relaLed Lo Lhe managemenL and admlnlsLraLlon of Lhe buslness 1hey are lncurred for Lhe
dlrecLlon and conLrol of an underLaklng 1hese represenL Lhe aggregaLe of Lhe cosL of lndlrecL maLerlal
lndlrecL labour and lndlrecL expenses lncurred by Lhe offlce and admlnlsLraLlon deparLmenL of an
organlsaLlon Some examples are as follows Cfflce prlnLlng and sLaLlonery CosL of brushes dusLers eLc for
cleanlng offlce bulldlng and equlpmenLs osLage and sLamps Salary of offlce manager clerks and oLher
employees Salary of admlnlsLraLlve dlrecLors Salarles of legal advlser Salarles of cosL accounLanLs and
flnanclal accounLanLs Salary of compuLer operaLor 8enL lnsurance raLes and Laxes of offlce bulldlng Cfflce
llghLlng heaLlng and cleanlng uepreclaLlon and repalr of offlce bulldlng furnlLure and LqulpmenL eLc Legal
charges 8ank charges 1rade subscrlpLlons 1elephone charges AudlL fee eLc
c Se|||ng and d|str|but|on overheads
Selllng and dlsLrlbuLlon overheads are lncurred for Lhe markeLlng of a commodlLy for securlng order for Lhe
arLlcles dlspaLchlng goods sold or for maklng efforLs Lo flnd and reLaln cusLomers 1hese expenses represenL
Lhe aggregaLe of lndlrecL maLerlal lndlrecL labour and lndlrecL expenses lncurred by Lhe selllng and
dlsLrlbuLlon deparLmenL of Lhe organlsaLlon 1hese overheads have Lwo aspecLs (l) procurlng orders (ll)
execuLlng Lhe order 8ased upon Lhls concepL Lhe selllng and dlsLrlbuLlons are sLudled separaLely

The muin porposes or udvuntuges oI cost sheet ure:

O L dIscIoses LIe LoLuI cosL und LIe cosL per unIL oI LIe unILs produced durIng LIe gIven perIod.
O L enubIes u munuIucLure Lo keep u cIose wuLcI und conLroI over LIe cosL oI producLIon.
O provIdIng u compuruLIve sLud oI LIe vurIous eIemenLs oI currenL cosL wILI LIe pusL resuILs und
sLundurd cosLs, IL Is possIbIe Lo IInd ouL cuuses oI vurIuLIon In cosLs und Lo eIImInuLe LIe udverse
IucLors und condILIons wIIcI go Lo Increuse LIe LoLuI cosL.
O L ucLs us guIde Lo LIe munuIucLurer und IeIps IIm In IormuIuLIng u deIInILe useIuI producLIon
poIIc.
O L IeIps In IIxIng up LIe seIIIng prIce more uccuruLeI.
O L IeIps LIe busInessmun Lo mInImIze LIe cosL oI producLIon wIen LIere Is u cuL LIrouL
compeLILIon.
O L IeIps LIe busInessmun Lo submIL quoLuLIons wILI reusonubIe degree oI uccuruc uguInsL
Lenders Ior LIe suppI oI goods.