Elements of cost | Direct and Indirect: Material, Labor, & Expenses
Summary
TLDRThis video explores the three key elements of cost in manufacturing: material, labor, and expenses. Material cost includes direct (raw materials like milk for butter) and indirect (like cotton waste). Labor cost is divided into direct (workers in production) and indirect (support staff). Expenses cover direct costs tied to specific jobs and indirect costs like rent and utilities. Understanding these costs is crucial for business efficiency.
Takeaways
- 🔍 The cost of an industrial enterprise is divided into three principal elements: material cost, labor cost, and expenses.
- 🏭 Material cost includes both direct material cost (raw materials necessary for production) and indirect material cost (materials necessary for the production process but not part of the final product).
- 🔨 Direct material cost varies with the level of output, such as the amount of milk used to make butter.
- ⚙️ Indirect materials are used in production but do not become part of the product, like cotton waste or sandpaper.
- 👷 Labor cost encompasses direct labor cost (cost of labor directly involved in production) and indirect labor cost (cost of labor that supports production operations but is not directly traceable to a specific job).
- 🛠️ Direct labor cost is associated with workers directly engaged in production, such as assemblers or carpenters.
- 👮 Indirect labor cost includes remuneration for labor that aids production, like inspectors, watchmen, and storekeepers.
- 💼 Clerical, managerial, sales, and distribution employees are also considered part of indirect labor costs.
- 💸 Expenses are costs of services and the theoretical cost of using owned assets, which are not directly linked to labor or material costs.
- 📊 Direct expenses are those that can be directly identified with a specific job or process, while indirect expenses are common costs incurred for multiple jobs or processes, such as rent or advertising.
Q & A
What are the three principal elements of cost in an industrial enterprise?
-The three principal elements of cost in an industrial enterprise are material cost, labor cost, and expenses.
What is direct material cost and how does it vary?
-Direct material cost is the cost of raw materials necessary to produce or manufacture a product. It varies according to the level of output.
Can you provide an example of direct material?
-An example of direct material is milk, which is used to produce butter.
What is indirect material cost and what are some examples of indirect materials?
-Indirect material cost is the cost associated with materials necessary for the production process but not directly used in the product itself. Examples include cotton waste, sandpaper, oil, greases, etc.
How can the same material be both direct and indirect material?
-The same material can be direct material for one producer and indirect material for another, depending on how it is used in the production process.
What is labor cost and how is it divided?
-Labor cost is the cost of salary, wages, bonus, and commission of the employees of a company. It is divided into direct labor cost and indirect labor cost.
Give an example of direct labor cost.
-Direct labor cost includes the cost of labor directly engaged in production operations, such as workmen assembling parts or carpenters making furniture.
What is indirect labor cost and who does it include?
-Indirect labor cost includes the remuneration paid for labor engaged to help production operations but not directly traced to a job process or production order. It includes inspectors, watchmen, sweepers, storekeepers, and other staff whose labor costs are not directly attributed to specific jobs or processes.
What are expenses and how are they categorized?
-Expenses are the cost of services provided to an undertaking and the theoretical cost of the use of owned assets. They are categorized into direct expenses and indirect expenses.
What is a direct expense and provide an example?
-A direct expense is an expense that can be directly identified with a unit of output, job process, or operation. An example is the cost of special patterns, designs, or plans for a particular job or work order.
Can you explain indirect expenses with an example?
-Indirect expenses are expenses other than indirect material and indirect labor that cannot be directly identified with units of output, job process, or operation. They are incurred commonly for jobs and processes, such as rent, power, lighting, depreciation, bank charges, advertising, etc.
Outlines
📚 Elements of Cost in Manufacturing
In this educational video, the speaker discusses the fundamental elements of cost involved in the manufacturing process. The video begins by defining the cost of manufacturing a product and categorizes it into three main components: material cost, labor cost, and expenses. Material cost is further divided into direct material cost, which includes raw materials necessary for production, and indirect material cost, which covers materials used in the production process but not as part of the final product. Labor cost is broken down into direct labor cost, referring to the wages of workers directly involved in production, and indirect labor cost, which includes the remuneration for support staff not directly tied to a specific production process. Lastly, expenses are defined as the costs of services and the theoretical cost of using owned assets, with direct expenses being those directly linked to a specific job or process, and indirect expenses being general costs incurred for multiple jobs or processes. The video encourages viewers to access more detailed information through a provided link and supports the channel through subscriptions and likes.
Mindmap
Keywords
💡Cost Elements
💡Material Cost
💡Direct Material Cost
💡Indirect Material Cost
💡Labor Cost
💡Direct Labor Cost
💡Indirect Labor Cost
💡Expenses
💡Direct Expenses
💡Indirect Expenses
Highlights
The cost of an industrial enterprise can be divided into three principal elements: material cost, labor cost, and expenses.
Material cost includes direct material cost and indirect material cost.
Direct material cost represents the raw material necessary to produce a product.
Indirect material cost is for materials necessary for the production process but not part of the product.
Labor cost consists of direct labor cost and indirect labor cost.
Direct labor cost is the cost of labor directly engaged in production operations.
Indirect labor cost includes remuneration for labor that supports production but is not directly traced to a job or process.
Expenses are the costs of services provided to an undertaking and the theoretical cost of using owned assets.
Direct expenses are those that can be directly identified with a unit of output or job process.
Indirect expenses are costs that cannot be directly identified with units of output or job processes and are common to jobs and processes.
The cost of idle time, overtime, holidays, etc., is considered an indirect cost.
Clerical and managerial staff, salesmen, and distribution employees are included in indirect labor.
Examples of indirect materials include cotton waste, sandpaper, oil, greases, etc.
The same material can be direct for one producer and indirect for another.
Some direct materials used so little are charged as indirect materials or overheads, such as nails, glue, and paints.
Indirect expenses include rent, power, lighting, depreciation, bank charges, and advertising.
For detailed information or to download the PDF, visit the link in the video description.
Support the channel by subscribing, liking the video, and engaging with the content.
Transcripts
hi welcome to education leaves
in this video i am going to discuss the
elements of cost
let's start the video the elements of
cost are those elements that constitute
the cost of the manufacture of a product
the cost of an industrial enterprise may
be divided into three principal elements
material cost labor cost and expense
let's understand each of elements in
details 1.
material cost it is the cost of
commodities supplied to an undertaking
material cost are two types direct
material cost
and indirect material cost
direct material represents the raw
material necessary to produce or
manufacture a product
the cost of direct material varies
according to the level of output
for example milk is the direct material
of butter
the amount of money spent on direct
materials is known as direct material
cost
an indirect material is one which is
necessary for the production process
but it's not directly used in the
product itself
which means it does not become an
integral part of the product
examples cotton waste sandpaper oil
greases etc the cost associated with
indirect materials is called
indirect material cost the same material
may be direct material for one producer
and an indirect material for another in
certain cases
some direct materials are used so little
that it is not worthwhile to charge them
as direct materials
nails glue paints are few examples
in such conditions these materials are
charged as indirect materials
or overheads number two
labor cost labor cost is the cost of
salary
wages bonus commission of the employees
of a company
labor cost is also divided into two
portions
direct labor cost and indirect labor
cost
direct labor cost is the cost of labor
directly engaged in production
operations
for example workmen engaged in
assembling parts
carpenters engaged in furniture making
etc
indirect labor cost is the remuneration
paid for labour engaged to help the
production operations
examples inspectors watchmen sweepers
storekeepers etc the remuneration paid
to these persons cannot be traced to a
job process or production order
the labor costs of idle time over time
holidays
etc are also taken as indirect costs
similarly clerical and managerial staff
salesmen distribution employees are also
included in the orbit of indirect labor
number three expenses
expenses the cost of service provided to
an undertaking
and the theoretical cost of the use of
owned assets
in easy word it is the expenditure other
than labor and material is called
expenses
expense are two types direct expenses
and indirect expenses direct expenses
are the expenses that can be directly
identified with a unit of output
job process or operation they are
specifically incurred for a job
or unit process and in no way they are
connected with other jobs or processes
for example the cost of special patterns
designs or plans for a particular job or
work order
indirect expenses are expenses other
than indirect material and
indirect labor which cannot be directly
identified with units of output
job process or operation these expenses
are incurred commonly for jobs and
processes
for example rent power lighting
depreciation
bank charges advertising etc
if you want to read in detail or
download the pdf
go through the link in the description
you can support my work by subscribing
to my channel
like the video and thanks for watching
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