prime cost: meaning, definition, pronunciation and examples
C1/C2Formal, Technical (Business/Accounting/Manufacturing)
Quick answer
What does “prime cost” mean?
The direct costs attributable to the production of goods, including raw materials and direct labour.
Audio
Pronunciation
Definition
Meaning and Definition
The direct costs attributable to the production of goods, including raw materials and direct labour.
In broader managerial accounting, it can refer to the total of all direct expenses incurred in the manufacturing process before adding overheads. It is a fundamental concept for calculating profitability and pricing.
Dialectal Variation
British vs American Usage
Differences
No significant difference in definition. The term is standard in accounting terminology in both varieties.
Connotations
Technical and precise, with strong associations to cost accounting, manufacturing, and business strategy.
Frequency
Equally low-frequency in general language but standard within specialised fields in both regions.
Grammar
How to Use “prime cost” in a Sentence
The prime cost of [PRODUCT/SERVICE] is [AMOUNT].To calculate the prime cost, add [MATERIAL COST] to [LABOUR COST].[COMPANY] focused on reducing its prime costs.Vocabulary
Collocations
Examples
Examples of “prime cost” in a Sentence
adjective
British English
- prime-cost accounting
- prime-cost analysis
American English
- prime-cost accounting
- prime-cost analysis
Usage
Meaning in Context
Business
Essential for product pricing, budgeting, and profitability analysis. 'The board reviewed the prime cost to assess the feasibility of the new product line.'
Academic
Used in economics, management, and accounting textbooks and papers. 'The study examined the relationship between prime cost efficiency and market competitiveness.'
Everyday
Rarely used in casual conversation. Would typically be paraphrased (e.g., 'the cost of the parts and the workers').
Technical
A precise term in cost accounting and managerial finance. 'Standard costing requires a detailed breakdown of the prime cost per unit.'
Vocabulary
Synonyms of “prime cost”
Vocabulary
Antonyms of “prime cost”
Watch out
Common Mistakes When Using “prime cost”
- Using 'prime cost' to mean 'best price' or 'lowest price'.
- Confusing it with 'retail price' or 'selling price'.
- Treating it as an uncountable noun (e.g., 'We invested a lot of prime cost').
FAQ
Frequently Asked Questions
No. Prime cost includes only direct materials and direct labour. COGS is broader, encompassing the prime cost PLUS allocated manufacturing overheads for the units actually sold.
Yes, in service industries, the 'prime cost' concept can apply to the direct costs of providing a service, such as consultant's labour hours and any specific materials used.
It is the most controllable component of total cost. Managing prime cost effectively is crucial for maintaining profitability, competitive pricing, and identifying inefficiencies in the production process.
Prime cost = Direct Materials + Direct Labour. Conversion cost = Direct Labour + Manufacturing Overhead. They are different analytical slices of production costs.
The direct costs attributable to the production of goods, including raw materials and direct labour.
Prime cost is usually formal, technical (business/accounting/manufacturing) in register.
Prime cost: in British English it is pronounced /ˌpraɪm ˈkɒst/, and in American English it is pronounced /ˌpraɪm ˈkɔːst/. Tap the audio buttons above to hear it.
Learning
Memory Aids
Mnemonic
Think of 'PRIME' as 'PRIMary' or first. The PRIME COST is the FIRST and most direct cost of making something.
Conceptual Metaphor
FOUNDATION/BUILDING BLOCK: The prime cost is the foundation upon which the final selling price is built.
Practice
Quiz
Which of the following is NOT typically included in the prime cost?