Cost of Work Details

The cost of work is the expenses that a business incurs as they provide their services to clients. Some of the costs of work may include direct labor costs, materials, raw materials like electricity, water, packaging, etc., and rent if the business doesn't own the building in which they operate.

There are other costs that you may not immediately consider cost of work. Some of these costs include government taxes and royalties. These royalties are mostly for natural resource extractions. Any kind of payment towards an outside evaluation or quality assurance process is also a cost of work. It doesn't matter whether you're paying for an internal or external service. If it is a cost going towards the production of your product or service, it is a cost of work.

Ideally, income is supposed to surpass a company's cost of work. The difference between the two figures is the company's profit. If the cost of work exceeds revenue, then the business isn't making any money.

Cost of Work Example

You are a manager of a company that processes food. Your company is well established and sells most of its products to wholesale food stores. But there are many steps that your products have to go through before they are ready to be released to the market.

The first thing you need is raw materials—the produce, meat, and dairy. The next thing that your company has to pay for is the monthly electric and water bills. Then there's the cost of the machinery maintenance once every two weeks. Most importantly, and don't forget, are the salaries that you pay your employees—machine operators, assembly-line personnel, the cleaners, the security detail, and the administrative team.

All these expenses are included in the cost of work because it's money pumped into the factory to make a profit from the products that you sell.

Cost of Work vs. Statement of Work

A statement of work is a summary of the work a company will perform for a potential client. The statement includes the type of work, the amount of time required, the cost of production or services, and the human resources that the company will need to complete the job. We most often see statements of work in state, federal, and municipal governments.

Similar to the cost of work, a statement of work details the cost of each element required to produce a product. Unlike a cost of work, however, the statement of work is intended as a proposal for work. You should figure the cost of work before producing a product, but the manufacturing process is not dependent on a written statement of that information. Some companies cannot work unless they submit a statement of work.

Types of Cost of Work

You can categorize the types of cost of work into two main areas: variable and fixed. Fixed costs of work are the things that cost the same regardless of demand, output, etc. This would be something like maintenance checks and salaries. Variable costs of work fluctuate depending on the market and inflation. These would be things like raw materials.