Page 39 - DCOM202_COST_ACCOUNTING_I

Unit 2: Cost Elements and Classification

5. Indirect Labour: Indirect labour is the cost of the labour incurred by the firm other than the Notes
direct labour cannot be apportioned.

Example: Cost of supervisor, cost of the inspectors and so on.
6. Indirect Expenses: Indirect expenses are the expenses other than that of the direct expenses
in the production of a product. The expenses which are not directly part of the production
process of a product or service known as indirect expenses.

Example: Rent of the factory, salesmen salary and so on.
Common costs are shared by multiple segments.

Example: Manufacturer of chairs, Segments = plastic chairs (p) & Wood chairs (W)
Manufacturing vs. Non-manufacturing Costs: Manufacturing costs are product costs consisting
of Direct Material (DM), Direct Labor (DL) and Manufacturing Overhead (MOH, OH)
Manufacturing Costs = DM + DL + MOH
Non-manufacturing costs are period costs incurred in selling and administrative activities.

Notes MOH = All indirect manufacturing costs, including
1. Indirect materials

2. Indirect labor — supervision, maintenance, janitorial, etc.
3. Other services — utilities, supplies, rent, insurance, depreciation, taxes, etc. used in
production
4. Anything that is related to production (cafeteria, fitness room, etc).

2.3.2 Technical Classification

Apart from this classification the costs are also classified into various categories according to the
purpose and requirements of the firm. Some of the most important classifications are as follows:
1. By nature or element or analytical segmentation
2. By functions
3. Direct and indirect cost
4. By variability

5. By controllability
6. By normality
7. By time
8. According to planning and control
9. For managerial decisions

Let us understand each of them one by one.

LOVELY PROFESSIONAL UNIVERSITY 33