# Elements of a Cost Sheet
## A. Direct Material Cost
Cost of direct material consumed. Add to RM cost:
- Freight inwards
- Insurance & other expenditure directly attributable to procurement
- Duties & Taxes (only if input tax credit is not available/availed)
Deduct: Trade discounts or rebates.
> Doubt Buster: Cash Discount is a non-operating (financial) item — it is NOT considered in cost calculations.
## B. Direct Employee (Labour) Cost
Total payment to employees engaged in production/provision of services. Includes:
- Wages & salary; allowances & incentives
- Payment for overtime; bonus / ex-gratia
- Employer's contribution to welfare funds (e.g. PF)
- Other benefits — medical, leave with pay, subsidised food, LTC, retirement benefit provisions
## C. Direct Expenses
Expenses (other than direct material and direct labour) incurred to make a product/provide a service, directly traceable in an economically feasible manner to a cost object. Examples:
- Cost of utilities — power & fuel, steam
- Royalty paid/payable for production
- Hire charges for specific equipment
- Fee for technical assistance/know-how
- Amortised cost of moulds, patterns, patents
- Product/service-specific design, drawing or software
## D. Production Overheads
Also called works/manufacturing overheads — indirect factory costs:
- Consumable stores & spares
- Depreciation of plant & machinery, factory building
- Lease rent of production assets; repairs & maintenance
- Indirect employee cost related to production
- Drawing & designing department cost
- Insurance of plant, machinery, factory building, RM & WIP stock
- Amortised cost of jigs, fixtures, tooling
- Service department cost (Tool Room, Engineering & Maintenance, Pollution Control)
## E. Special Items (added between Factory Cost and COP)
- Quality Control Cost — resources consumed on quality control procedures
- Research & Development — only R&D for improvement of process/system/product/service
- Administrative OH (Related to Production) — only production-related admin OH (general admin OH excluded here)
- Credit for Recoveries — realisable value of scrap/waste is deducted (reduces COP)
- Packing Cost (Primary) — packing essential to hold and preserve the product for customer use
## F. Administrative Overheads (General)
General administration of the entity:
- Depreciation & maintenance of building/furniture of general management
- Salary of admin employees, accountants, directors, secretaries
- Rent, rates & taxes, insurance, lighting, office expenses
- Indirect materials — printing, stationery, office supplies
- Legal charges, audit fees, directors' sitting fees, remuneration, meeting expenses
> Doubt Buster: Bank Charges are treated as Administrative Overheads (AOH).
## G. Selling Overheads
Costs related to sale of products/services:
- Salary/wages of sales department & selling employees
- Rent, depreciation, maintenance of sales department
- Advertisement, website maintenance for online sales, market research
- Packing Cost (secondary) — packing to store, transport, inform, promote and make the product marketable
## H. Distribution Overheads
Costs of making goods available to customers:
- Salary/wages of distribution employees
- Transportation & insurance related to distribution
- Depreciation, hire charges, maintenance & operating costs of distribution vehicles