Material cost: material cost is the cost of material and commodities used in the organization material can be direct or indirect.

• Direct materials: Direct materials are those which can be identified with individual costs centers and which becomes an irregular part of finished products. They are basically raw material and components which are purchased from outside sources or manufactured in the company’s own plant.

• Indirect materials: Indirect materials are these which cannot be identified with the individual cost senders. They don’t form an integral part of the finished product.

Labor cost:

Labor cost is the cost of remuneration Le. Wages, salaries, commission, etc. paid to the employees of the organization. Labor cost is direct and indirect.

• Direct labor cost: Direct cost is that labor cost which can be identified with the individual centers and it is usually incurred for those employees who are engaged in the manufacturing process
• Indirect labor cost: indirect labor cost cannot be identify with the individual cost centers and is generally incurred for those employees who are themselves not engaged in manufacturing process but assist other.

Expenses:

Expenses are the cost of services provided to the organization and the national cost of the assets owned by the organization. Expenses can be direct or indirect.

• Direct expenses: direct expenses can be identified with a particular job or with individual cost centers.
• Indirect expenses: indirect expenses cannot be identified with the individual cost centers or particular job.

Prime cost:

The aggregate of direct material cost, direct labor cost, and direct expenses is called as prime cost.

Overheads:

The aggregate of indirect material cost, indirect labor cost, and indirect expenses is called as overheads.