Cost accounting is composed of three principal elements such as materials, labour and overhead. We will discuss the se items individually as stated below:
1. Direct and Indirect Materials
Materials, a key element of cost accounting, are divided into direct and indirect materials. Direct materials are directly integrated into a finished product. Cotton in clothing and wood in furniture are examples of direct materials. Materials like glue, gloves and tape cant are tied to a specific product and they constitute indirect materials.
2. Direct Labour
In cost accounting, labour refers to wages given to employees related to a particular aspect of creating products or delivering services. Wages may include salaries, hourly rates, overtime, bonuses and employee benefits.
3. Overheads
Overheads cover the costs that are related to ongoing business expenses but cannot be directly attributed to creating products or services. Office staff, utilities, the maintenance and repair of equipment, supplies, payroll taxes, depreciation of machinery, rent and mortgage payments and sales staff are some examples of overhead costs.
