[PDF Notes] What are the four main components of Cost?

The four main components of costs are: (a) Prime Cost, (b) Works Cost, (c) Office Cost and (d) Total Cost.

Prime Cost

It consists of costs of direct material, direct labour and direct expense specifically attributable to the job. This is also known as flat, direct or basic cost.

Works Cost

It comprises of prime cost and factory overheads, (cost of indirect material, indirect labour and indirect expenses related to factory works). This cost is also known as factory cost, production or manufacturing cost.

Cost of Production (Office Cost)

It is the sum total of works cost and office and administrative overheads

Cost of Production = Works Cost + Office and Administrative Overheads

Total Cost

It comprises of cost of production and selling and distribution overheads (Cost of indirect material, indirect labour and indirect expenses for selling and distribution activities).

Total Cost = Cost of Production + Selling and Distribution Overheads

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