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Elements of cost

Short answer

The three elements are material, labour, and expenses. Direct material and labour plus direct expenses form prime cost; indirect material, labour, and expenses are overheads.

What are the elements of cost?

The elements of cost are the basic components into which total cost of a product is divided. There are three:

  1. Material cost: cost of material used. It is direct (becomes part of the product, e.g. cement in concrete) or indirect (e.g. lubricants, nails).
  2. Labour cost: wages paid to workers. Direct labour works directly on the product (a mason); indirect labour does not (supervisor, storekeeper).
  3. Expenses: all other costs. Direct expenses can be traced to a product (hire of special machinery for one job); indirect expenses cannot (rent, power, depreciation, insurance).

Prime cost = direct material + direct labour + direct expenses. Overhead = all indirect material, labour and expenses.

✓ Answer checked by Claude Opus 5.5 (high effort)

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