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

# Elements of cost; prime and overhead cost

Engineering Economics · Chapter 1: Introduction

- Asked in: 2065 Chaitra, 2+2 marks
- Video: [Prime cost, Overhead, Factory cost and total cost.](https://www.youtube.com/watch?v=8ydjXs6Fe4o) — Educationleaves
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/elements-prime-overhead-cost
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

What are the elements of cost? Discuss briefly on the prime cost and overhead costs.

## Short answer

The three cost elements are material, labour and expenses, each either direct or indirect. Prime cost is the sum of direct material, direct labour and direct expenses, traceable to each unit. Overhead costs are indirect material, labour and expenses, shared across products and allocated.

## Answer

#### Elements of cost
The three elements of cost are **material, labour and expenses**. Each is either direct (traceable to a product) or indirect.

#### Prime cost
Prime cost is the total of all direct costs of making a product:
**Prime cost = direct material + direct labour + direct expenses**
- Direct material: cement and steel in a beam.
- Direct labour: wages of the mason making the beam.
- Direct expenses: hire charges of a special machine used only for that beam.
It varies directly with output and can be traced to each unit.

#### Overhead cost
Overhead (indirect cost) is the sum of indirect material, indirect labour and indirect expenses. It cannot be linked to a single unit and is spread over products using an allocation rate.
- **Factory overhead:** supervision, factory rent, power, depreciation, repair.
- **Administration overhead:** office salaries, audit fees, stationery.
- **Selling and distribution overhead:** advertisement, sales staff, transport of goods.

Factory cost = prime cost + factory overhead; total cost = factory cost + administration, selling and distribution overheads; selling price = total cost + profit.

## Check yourself

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

1. Prime cost includes:
   A. Factory overhead
   B. Direct material, direct labour and direct expenses
   C. Selling overhead
   D. Indirect material
   Answer: B. Only direct costs. (Key point: Prime cost)

2. Advertisement and delivery are:
   A. Prime cost
   B. Factory overhead
   C. Selling and distribution overhead
   D. Administration overhead
   Answer: C. They are selling costs. (Key point: Overhead types)

3. Factory cost equals:
   A. Total cost + profit
   B. Prime cost + selling overhead
   C. Direct material only
   D. Prime cost + factory overhead
   Answer: D. Total cost adds admin and selling overhead. (Key point: Cost build-up)

## Related in Engineering Economics

- [Overhead cost and opportunity cost](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aoverhead-opportunity-cost) — Engineering Economics, chapter 1
- [Fixed overhead cost variance from standard card](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Afixed-overhead-variance-standard-card) — Engineering Economics, chapter 1
- [Elements of cost](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aelements-of-cost) — Engineering Economics, chapter 1
- [Present equivalent of fuel costs, actual dollar](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aactual-dollar-fuel-cost-waste-plant) — Engineering Economics, chapter 8
- [Cost variance analysis from standard and actual](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Acost-variance-analysis-9000-units) — 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
- [Quality costs more, lack costs even more](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Atotal-quality-cost-justify) — Project Engineering, chapter 4, asked 2×
- [TCTO numerical: least cost schedule, Rs 2000/week](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Atcto-2068-bhadra) — Construction Management, chapter 2
- [Regression of maintenance cost on car age](https://www.bctengineer.com/question.md?key=semester_5%2Fprobability_and_statistics%3Acar-age-maintenance-regression) — Probability and Statistics, chapter 5