Prime cost
Prime cost is the total of direct materials, direct labour and direct expenses for a cost object. It excludes indirect production overhead and non-production costs. Calculate it using the same output and period assumptions for all components. Prime cost is a useful intermediate product-cost total, but it is not normally the full cost of producing and selling the output. Whether a cost is direct depends on traceability to the object.
Worked example
A job uses materials $700, direct labour $400 and a specialist design fee traceable solely to the job of $100. Prime cost is $1,200; allocated factory overhead is added separately.
Common mistake
Do not include all factory costs in prime cost or omit a genuine direct expense merely because it is neither material nor labour.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |