Which relationship correctly describes works cost in a manufacturing cost statement?
Correct answer: B. Prime cost plus factory overhead
- A. Factory overhead plus selling expenses
- B. Prime cost plus factory overhead
- C. Administrative cost plus financial charges
- D. Sales revenue minus operating profit
Explanation
Works cost, also called factory cost, is obtained by adding factory or production overhead to prime cost. Selling, administrative and financial expenses are added later when calculating total cost.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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