What are the 4 types of costs?

Meaning of Cost:- Cost means price paid for something. But in the management terminology, Cost refers to the expenditure not a price. Thus cost represents a sacrifice of values for attaining something.

Definition According to the cost and management accountants, London, As “The amount of expenditure incurred on a given thing”.

Example:- For Manufacturing of Clothes, The expenditure incurred on purchase of cotton as material, wages paid to weavers, salary paid to factory manager, supervisor and insurance, electricity bills, Depreciation of machinery in factories and transport vehicle are the example of Cost items.

There are 4 main types of costs. What are the 4 types of costs?

Prime Cost
Factory Cost
Office Cost
Selling and Distribution costs

Prime Cost :-

Prime cost is the aggregate cost element of direct costs. Which includes direct material cost, Direct Labour costs and Direct Expenses. Example:- (Material) Cost of iron in case of machinery, Cost of yarn in case of clothes. ( Labour ) Wages paid to weaving yarn to clothes, wages paid to mason for construction of building. ( Expenses ) Hire charges of plant and Machinery. Carriage and freight on direct material purchased, import duty and octroi paid on imported material. What are the 4 types of costs?

Prime cost is also known as Direct Cost and Flat Cost.

Factory Cost:-

Factory overhead includes all indirect Costs incurred with the factory in concern with the manufacturing operations. These indirect costs are incurred with the connection of running factory work. Example – lubricating oil, Cotton waste for cleaning the machinery, Coal, Gas and Fuel, Wages of store keeper, Wages of time keeper, Salaries of supervisor and foreman, Factory rent, factory rates and insurance, repairs to factory building, depreciation of factory plant and machinery and Depreciation of owned factory building etc. What are the 4 types of costs?

It is also known as Works cost, Production Cost and Manufacturing Cost.

Office and Administration overhead Cost:-

These include all indirect Costs relating to administration and direction of business. It includes office and administration overhead refers to office expenses and administration expenses as well as control of business. Example:- Office rent, Office rate and insurance, depreciation of owned office building, office lighting, depreciation of office furniture, office stationery, audit fee, director remuneration, salary of general manager, Salaries of general clerical staff, bank charges etc.

It is known as “Gross Cost” or Cost of production.

Selling and Distribution overhead:-

These include all indirect costs which are incurred for prompting sales and retaining the customers and for delivering goods after their manufacturing to the consumers. Example:- Cost Advertisements, rent, rates, taxes and insurance of show-room building, depreciation of owned showroom building, showroom lighting, salary of sales manager, salaries of salesman, commission on sales, carriage on sales, packing charges, rent or depreciation of warehouse, salary of warehouse keeper, running and maintenance of delivery vans etc. What are the 4 types of costs?

It is known as total cost, Selling Cost or Cost of Sales.

So if we see above all the explanations, then we find that these elements of costs are included as follows.

Material Cost:- Material cost refers to the cost of a commodity supplied to an undertaking. Example:- Cost of sand, cement and bricks for the construction of building for the business. Cost of raw iron for furnishing final products like machinery.
Labour Cost:- Labour cost refers to the cost of remuneration of employees, wages paid to workers in a factory. Wages paid to mason and machinery operators.
Expenses:- Expenses refers to the cost of services provided to a factory by the workers or employees. Rent of the building, insurance paid for the material, electricity bill of lighting, depreciation of the transport.

However, All these costs is divided into the following costs as. What are the 4 types of costs?

Direct Costs
Indirect Costs

Direct Costs:- it refers to those costs which can be easily traced or identified within the product formation, process and department. Example:- Labour and material used for the manufacturing of a product or process of a production are examples of direct costs.

Indirect Costs:- indirect costs are those costs which are not directly identified or traceable within a product, process and department. As Factory Rent, Insurance paid, Electricity bill and Manager salary etc.

Conclusion:- These four types of costs are incurred in every factory and business. Which mainly engaged in the manufacturing process. So all costs are included into Prime cost and contains only all direct material, labour and expenses. And other remaining indirect costs involve factory costs, office and administration costs as well as selling and distribution costs. So now we get the answer to the question, \” What are the 4 types of costs?

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