Classification of cost:

Primary cost and Overhead cost

The element of cost mention above, i.e material cost, labour cost
and expense, constitute the total cost. The total is cost is generally
calssified into prime cost and overhad cost.
Prime cost: It is the direct cost that can be reasonably measure
and allocated to a specific output or work activity. Thus it is the
aggregate of direct material cost, direct labour cost and direct
expenses.
Overhead cost: It is indirect cost that cannot be reasonably
measure and allocated to specific output or activities. Overhead
cost is the sum of indirect material cost, indirect labour cost,
indirect expenses.

Component of prime cost:

a. Direct material cost:

i. Material including component parts, specially purchased
requisitioned for a particular job ordered or processed.
ii. Material processing from one operation or process to
another.
iii. Primary packing materials such as cartoon cardboard box
etc.

b. Direct labour cost:
i. Labour engaged in altering the condition , conformation and
composition of the product.
ii. Inspector, analyst etc specially required for such production.
iii. If specially identified, the wage of foreman, chargehands, shopclerks,
ways of internal transport personal etc.

c. Direct expenses:
i. cost of special design, drawing and layouts.
ii. Hire of special tools and equipment for a particular job.
iii. Maintenance cost of such tools and equipment.
Components cost of Overhead cost: Overhead cost may be of 4
types – production overhead, administration overhead, selling
overhead, distribution overhead.
Here component of production are given:
i. Indirect material cost.
ii. Indirect labour cost.
iii. Indirect expenses.
Indirect material cost: Indirect material is the material that can
not be traced in the finished product. E.g lubricants , cotton, waste,
grease, small tools. How ever some minor items which enter into
production and form pars of its are conveniently treated as indirect
material. Such as cost of thread in shirt in shirt making cost.
Indirect labour cost: Labour cost not charged directly are indirect
labour cost. In general salary or wage of the following are treated
as indirect wages: foreman, supervisor, maintenance labour etc.

Indirect expenses:

a. Rent, rates(taxes) , insurance in relation to factory.
b. Depression, power and fuel, repair and maintenance of plant
machinery and building.
c. Other sundry expenses like first aid employment etc.