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1. 1
Element of cost
• Cost object
• Cost
• Cost unit
• Cost centre
• Profit centre

2. 2
Cost object
• It is an activity or item or operation for which
a separate measurement of costs is desired
• E.g. the cost of operating the personnel
department of a company, the cost of a repair
fob, and the cost for control

3. 3
Cost
• It is the amount of expenditure incurred on a
specific cost object
• Total cost = quantity used * cost per unit (unit
cost)

4. 4
Cost unit
• It is a quantitative unit of product or service in
which costs are ascertained.
• e.g. cost per table made, cost per meter of
cloth.

5. 5
Cost centre
• It is a location or function of an organisation in
respect of which costs are ascertained
• E.g. the rent, rates and maintenance of
buildings; the wages and salaries of
strorekeepers

6. 6
Profit centre
• It is location or function where managers are
accountable for sales revenues and expenses
• E.g. division of a company that is responsible
for the sales of products

7. 7
Cost classification
Costs can be classified into two kinds namely,
• Direct cost
• Indirect cost (overhead)

8. 8
Direct cost
• Cost that can be identified specifically with or
traced to a given cost object
• The direct costs consist of the following three
elements:
– Direct materials
– Direct labour
– Direct expenses

9. 9
Direct Material:
• The cost of materials – the cost of materials used
entering into and becoming the elements of a
product or service
• E.g. fabrics in garments
Direct Labor:
• The cost of remuneration for working time
• E.g. assembly workers’ wages in toy assembly
Direct Expenses:
• Other costs which are incurred for a specific
product or service
• E.g. royalties

10. 10
Indirect cost (overhead)
• Cost that cannot be identified specifically with
or traced to a given cost object
• They are identified with cost centres as
overheads
– Indirect materials
– Indirect labour
– Indirect expenses

11. 11
Indirect materials:
• Such as stationery, consumable supplies, spare
parts for machine that assist to the production of
final products.
Indirect Labor:
• Such as salaries of factory supervision and office
staff that do not directly involve in production of
the final product.
Indirect Expenses:
Such as rent, rates, depreciation, maintenance
expenses that do not have instant relationships
with the manufacturing processes