PRIME COST Meaning and
Definition
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Prime cost is a financial term that refers to the direct cost of manufacturing or producing a product or providing a service. It encompasses all the expenses directly related to the creation or acquisition of a product, excluding any indirect costs such as overhead expenses or administrative costs. In simplified terms, prime cost represents the actual cost of materials and labor required to produce a specific item or perform a particular service.
The calculation of prime cost typically involves adding together the cost of raw materials and direct labor. Raw materials cost includes the expense incurred in purchasing or acquiring the necessary components or inputs used in the production process. Direct labor cost refers to wages or salaries paid to the workers directly involved in the manufacturing or provision of the service.
Understanding the prime cost is crucial for businesses as it helps determine the production cost per unit and forms the basis for pricing decisions. By analyzing and managing prime cost, organizations can assess the profitability of their operations, identify areas of cost inefficiencies, and make informed decisions to improve their financial performance.
It is important to note that prime cost should not be confused with total cost, which includes both direct and indirect costs. Direct costs are specific to the production process, while indirect costs are associated with the overall operations of the business.
Common Misspellings for PRIME COST
- orime cost
- lrime cost
- -rime cost
- 0rime cost
- peime cost
- pdime cost
- pfime cost
- ptime cost
- p5ime cost
- p4ime cost
- prume cost
- prjme cost
- prkme cost
- prome cost
- pr9me cost
- pr8me cost
- prine cost
- prike cost
- prije cost
- primw cost
Etymology of PRIME COST
The word "prime cost" has its roots in medieval and early modern accounting practices. It comes from the Latin word "primus", meaning first. In this context, "prime" refers to the initial or first element in a cost calculation. The word "cost" originates from the Latin word "constare", which means to stand together or to consist of. Therefore, "prime cost" refers to the first or primary basic cost of producing or acquiring goods or services. It is the sum of the direct costs, including raw materials, direct labor, and other expenses directly associated with production.
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