KKStudyCentre

Name

: KKReddy

Designation
Branch

: Sr. Lecturer.
: Mechanical Engineering.

Institute
: KKStudyCentre,
Visakhapatnam.
Subject

: Estimating & Costing.

Topic

: Elements of costing

Sub title
costing

: List out elements of

Do you know
What is Manufacturing firm?
What is Production?
What is estimation?

 What is cost?

Do you know
What is costing?
What are element of cost?

Objectives

On completion of this period, you would

be able to know :

Definitions of Manufacturing firm,

Producer, Consumer

Definitions of cost, costing and

estimation

Objectives of costing
Elements of cost

Definitions

Manufacturing firm
It is an organization in which raw
material is transformed
into required finished product.

Producer
Producer is a person who makes
good quality product
with the available resources.

 Consumer
Consumer is a person who buys the
manufactured goods.

Cost
Cost is the total expenditure incurred
in making any
product

Estimation
Estimation is the determination of
probable cost of a
product before manufacturing

 Costing
Costing is the determination of actual
cost of a product after manufacturing.

Objectives of costing
Used for fixing the selling price.
Used to reduce the total cost of
manufacturing by eliminating
undesirable expenditure.

Used to prepare budget.

 Used to decide whether the

manufacturing of a product is
profitable or not.

Helps to decide whether it is

economical to manufacture or buy it
from outside.

Helps to decide the discount to be

allowed on catalogue price.

Elements of costing

Material cost
Expenses

Labour cost

1.Direct material
1.Direct labour
1.Direct expenses
2.Indirect material
2.Indirect labour
2.Indirect expenses
fig-1

Material cost

Direct materials

Material which becomes a part of

the finished product
(Productive materials)
e.g.. Raw material such as MS, CI
etc.

Indirect material
Material which are required in the
manufacturing
process other than
direct material (Non productive
material).
e.g.. Lubricating oil, cotton waste, belt
fasteners etc.

Calculation of direct material cost

Study the component drawings and
split the components into
geometric shapes.

required

 Evaluate

the volume
individual component.

of

each

Sum of the volume of individual

components gives the total volume of
component.

Calculate the weight of the material

(Product of volume and density).

Weight of the material in Kg @ of cost

per Kg gives total material cost.

Labour cost

Direct labour

Labour actually engaged in

performing the
manufacturing operation on
transforming the direct
material (Productive labour).
e.g.. Workers

Indirect labour

Labour who assist the direct labour

in discharging their
duties.
e.g.. Foreman, Supervisor,
Watchman, Storekeeper

Calculation of direct labour

cost

 Wages paid to the labour engaged in

transforming the raw material into
finished product.

Estimator should estimate the time

required for each operation according
to which wages are paid.

Various Factors and allowances to

be considered
in the estimation of time

Factors :

Set up time

Operation time

Teardown time

Allowances

Personal allowances

Fatigue allowances

Tool sharpening and changing

allowances

Measuring & checking allowances

Other allowances.

Expenses

All the expenditure over and above

direct material and labour cost
incurred in a factory.

Direct expenses

The expenses charged directly to a

particular job
e.g.. Special jigs and fixtures, special
patterns.

Indirect expenses
The expenses which are not directly
charged on product.

e.g.. Factory expenses, selling &

distribution expenses

Summary
So far we have discussed about

Definitions of

Cost & Estimation

Material cost, direct and indirect
Labour cost, direct and indirect
Calculation of material and labour
cost

Expenses, direct and indirect

QUIZ

Purchasing of drill jigs comes

under__________ expenses

direct expenses

indirect expenses

overheads

none of the above

CI blanks for making gear wheel is

an example of______

indirect materials

direct materials

both a) & b)

none of the above

Direct expenses is a part of

____________

 Office cost

factory cost

prime cost
selling cost

4. Indirect labours are_________

Machinist
welder
crane driver
fitter

Frequently asked questions

What are the main elements of

cost. Explain each with example?

What is meant by Elements of

Costing?

Explain Material Cost, Labour Cost

and Expenses?

4.

What is the procedure for

calculation of Direct material cost
and Direct labour cost?

Assignment
Explain the procedure for calculating
labour cost by considering all
allowances with an example.

Explain direct and indirect expenses

with example

THANK YOU