Prime Cost Calculator
Answers the Question
Assuming we had no overhead whatsoever, what does does it cost to produce our goods?
Calculator for Prime Cost
What Is the Prime Cost?
Prime cost can be used to compare production efficiency across manufacturers of an industry. The lower the value, all things being equal, the more efficient the operation.
Why Is it Important?
- Being able to track efficiency and compare it to that of other close competitors will provide context into expenditures and likely indicate whether there is room for significant improvement.
Formula(s) to Calculate Prime Cost
- PRIME COST = COST OF RAW MATERIALS + COST OF DIRECT LABOR
- Forgetting that this formula does not directly include automation costs. A firm that has higher prime costs, due to a lack of automation, may enjoy a far lower cost structure.
- Not considering adaptability. Some firms that have the lowest prime cost may be so specialized that they cannot effectively retool when customer preferences change.