Question

Mention the meaning of works cost.

Hint:

Think of the cost sheet in stages. The first stage is Prime Cost (all direct costs). The second stage is Works Cost, which is simply the Prime Cost plus all indirect costs incurred {inside the factory}.

Answer 1

Works Cost, also known as Factory Cost or Manufacturing Cost, represents the total cost incurred in the manufacturing process of a product within a factory. It is a crucial sub-total in a cost sheet that aggregates all costs related to production up to the factory gate.
The components of Works Cost are:

Prime Cost: This is the sum of all direct costs associated with production. \[ \text{Prime Cost} = \text{Direct Materials} + \text{Direct Labour} + \text{Direct Expenses} \]
Factory Overheads (or Works Overheads): These are all the indirect costs incurred within the factory to support the production process. Examples include:
Indirect materials (e.g., lubricants, cleaning supplies)
Indirect labour (e.g., salaries of supervisors, factory managers)
Factory rent and insurance
Depreciation of plant and machinery
Power and fuel for the factory

The formula to calculate Works Cost is: \[ Works Cost = Prime Cost + Factory Overheads \] After calculating Works Cost, administrative overheads are added to arrive at the Cost of Production.