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Introduction to Cost Elements

A Cost element is simply the cost of a resource that is pent to perform an activity in a business organization. There are various types of cost elements that are studied and used in the field of accounting and understanding the various types of the cost will help you in managing the accounts of a business in a better manner.

  • Product costs: Product costs include all the money spent on non-manufacturing tasks and is further classified into labor costs, materials costs and overhead costs.
  • Period Costs: This type of cost elements are not related to manufacturing and require to be noted in the expense section of accounting books as soon as the costs are sustained.
  • Materials costs: These are the costs that are incurred in purchasing the raw materials and other equipment's required for producing and developing the product and these costs can be either classified as direct or indirect.
  • Labor costs: As the name suggests that the money spent on paying the employees their salary and other allowances are known as labor costs. Such types of costs are handled by the human resource department of an organization.

Apart from these cost elements, there are many others and here we are listing a few of them which are as follows.

  • Incremental and opportunity costs
  • Controllable and uncontrollable costs
  • Overhead costs
  • Imputed costs
  • Fixed and variable costs
  • Out-of-pocket and sunk costs
  • Direct and indirect costs

These costs can be further classified according to different departments such as production, admin, marketing, sales, and distribution.

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