Elements of Unit Level Cost

There are three elements of cost under unit costing. These are material, labor and overheads. As there is production of similar goods in large quantity, it is easy to estimate the total cost of material. Normally standards are fixed in advance so that wastage of material may be minimized to a great extent. The labor costs are also pre-determined from the past records. It must be clear that the distinction between direct and indirect material as well as of labor be made. The overheads are the important aspects of cost in unit costing. Factory, administrative and selling overheads should be estimated within reasonable level of accuracy. Normally factory overheads are estimated as a percentage of direct wages while administrative as well as selling overheads are estimated as a percentage of works cost.