There are four broad elements of cost.
1. Materials: The substance from which a product is made is known as material. It may be in a raw or a manufactured state. Cotton used in manufacturing cloth, sugarcane used in producing sugar, rubber and leather used for producing shoes are examples of materials. Material can be direct as well as indirect.
2. Labour: Labour means the human effort required for converting materials into finished goods. It can be direct as well as indirect.
3. Expenses: Expenses may be direct or indirect.
4. Overheads: The term 'overhead' includes indirect material, indirect labour and indirect expenses.