Prime costs

Meaning

Prime cost = Direct Materials + Direct Labour

These are costs that can be directly traced to each unit of product.

Typical examples for a manufacturer:

Direct materials – e.g. main raw materials used in production

Example: Wood, steel, fabric, or main components used to make the product.

Direct labour – wages of workers who physically convert materials into finished goods

Example: Wages of machine operators, assembly line workers who work directly on the product.