Prime Cost

AAA

DEFINITION of 'Prime Cost'

A business's expenses for the materials and labor it uses in production. Prime cost is a way of measuring the total cost of the production inputs needed to create a given output. By analyzing its prime costs, a company can determine how much it must charge for its finished product in order to make a profit. By lowering its prime costs, a company can increase its profit margin and/or undercut its competitors' prices.

INVESTOPEDIA EXPLAINS 'Prime Cost'

For example, the prime costs for creating a can of soda would include raw materials such as the aluminum needed for the cans, ink to customize the cans with the product's brand name and logo, soda ingredients (i.e. carbonated water, caramel coloring, caffeine, sugar or aspartame and preservatives), freight charges to transport the raw materials to the manufacturing plant and the wages, taxes and benefits paid to or on behalf of the employees involved in the soda manufacturing process.

RELATED TERMS
  1. Cash Flow From Operating Activities ...

    An accounting item indicating the cash a company brings in from ...
  2. Continuing Operations

    Continuing operations is a business term used to describe the ...
  3. Revenue

    The amount of money that a company actually receives during a ...
  4. Profit Margin

    A ratio of profitability calculated as net income divided by ...
  5. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  6. Operating Profit

    The profit earned from a firm's normal core business operations. ...
Related Articles
  1. An Introduction To Depreciation
    Active Trading

    An Introduction To Depreciation

  2. The Essentials Of Corporate Cash Flow ...
    Retirement

    The Essentials Of Corporate Cash Flow ...

  3. Off-Balance-Sheet Entities: An Introduction
    Investing

    Off-Balance-Sheet Entities: An Introduction

  4. Starting A Small Business In Tough Economic ...
    Options & Futures

    Starting A Small Business In Tough Economic ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center