prime costs are directly related to production costs. These costs are consumed during the production process. It includes the labor cost and raw material cost as raw material and labor are the prime inputs in manufacturing a product.
While computing Prime Costs Company doesn’t take into account indirect costs like marketing cost, administrative cost, product delivery cost etc. But for a company its very important to know the total cost incurred during the process of production starting from raw material purchase to product consumption.
How to calculate?
Prime cost = Raw material cost + Labor cost