---
title: "Elements of cost"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:elements-of-cost"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/elements-of-cost
site: BCT Engineering
---

# Elements of cost

Engineering Economics · Chapter 1: Introduction

- Asked in: 2068 Jestha, 2 marks
- Video: [Elements Of Cost - Material , Labour And Overheads | Cost Sheet](https://www.youtube.com/watch?v=OpIQuGSdAwk) — Roshni Gupta
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/elements-of-cost
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

What are the 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.

## Answer

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.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. The three elements of cost are:
   A. Fixed, variable and semi-variable
   B. Material, labour and expenses
   C. Land, labour and capital
   D. Prime, factory and selling
   Answer: B. Each is either direct or indirect. (Key point: Elements)

2. Prime cost equals:
   A. Factory cost + profit
   B. All indirect costs
   C. Direct material + direct labour + direct expenses
   D. Direct material + overhead
   Answer: C. Prime cost is all direct costs. (Key point: Prime cost)

3. Which is indirect labour?
   A. Mason building the wall
   B. Cement used in concrete
   C. Hire of machine for one job
   D. Supervisor or storekeeper
   Answer: D. Indirect labour does not work directly on the product. (Key point: Indirect labour)

## Related in Engineering Economics

- [Elements of cost; prime and overhead cost](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aelements-prime-overhead-cost) — Engineering Economics, chapter 1

## Related in other subjects

- [Elements of cost control; feedback control](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Acost-control-elements-feedback-system) — Project Engineering, chapter 4