# Prime Cost Calculator

Prime costs are all of the costs that are directly attributed to the production of each product. In other words, prime costs are a firm’s expenses directly related to the materials and labor used in production. They are direct costs, meaning they include the costs of direct materials and direct labor involved in manufacturing an item. It refers to the production of a product’s costs, which are calculated to ensure the profit margin for a product of a business.

## Types of Direct Cost

The prime cost calculates the direct costs of raw materials and labor that are involved in the production of a good.

• Direct materials are the traceable matter used in manufacturing a product. The direct materials for a manufacturer of dessert products will include flour, sugar, eggs, milk, vegetable oil, spices, and other ingredients in the recipes.
• Direct labor refers to the employees and temporary staff who work directly on a manufacturer’s products.

Prime costs do not include indirect costs, such as advertising and administrative costs.

## Prime Cost Formula

Prime cost is calculated by adding the cost of raw materials to the cost of labor directly associated with the production process. The formula is as follows:

Prime Cost = Raw Materials + Direct Labor

## Prime Cost Example

For example, a toymaker makes a doll for children. The cost of material that the toymaker uses (cloth, paint, plastic are more) equals \$250, while the labor charges are \$100. In this case, the total prime cost to produce the doll is \$350.

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