Prime Cost
Accounting glossary · Understand, connect, apply
Prime cost is the sum of direct materials and direct labour in a conventional manufacturing cost classification. It captures two major costs traced to production.
Example
A batch uses direct materials of 3,200 and direct labour of 1,800. Prime cost is 5,000 before manufacturing overhead is included.
Formula and assumptions
Prime cost = direct materials + direct labour
Remember the difference
Prime cost is not total production cost. Direct labour also appears in conversion cost, so adding prime cost and conversion cost together would count labour twice.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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