Prime cost refers to the actual amount of money spent on purchasing an item. For instance, if a toy is bought for $10, the prime cost would be $10, similar to the price tag on the item.
The prime cost refers to the total cost of materials and labor involved in producing goods or services. For instance, if a bakery spends $10 on ingredients and $5 on labor to make a cake, the prime cost of the cake would be $15. This example highlights that the prime cost solely encompasses the direct expenses associated with production and does not incorporate indirect costs like rent or utilities. By calculating the prime cost, businesses can ascertain the minimum price they must charge in order to cover their expenses and generate a profit.
Prime cost refers to the direct costs of producing a product or service, including materials, labor, and other expenses directly related to production.
Prime cost is calculated by adding the cost of materials and labor used in production.
Prime cost is important in business because it helps determine the profitability of a product or service and can help identify areas where costs can be reduced.
A business can reduce prime cost by negotiating better prices for materials, improving production efficiency, and reducing labor costs.
Prime cost includes only the direct costs of production, while conversion cost includes both direct and indirect costs, such as overhead expenses.
Prime cost is a key factor in determining the price of a product or service, as it directly affects the profitability of the business.
Common mistakes include failing to include all direct costs, using incorrect pricing for materials, and failing to account for labor costs accurately.
A business can ensure accurate prime cost calculations by keeping detailed records of all direct costs, regularly reviewing pricing for materials, and accurately tracking labor costs.
Legal considerations related to prime cost may include compliance with labor laws, tax regulations, and contract requirements.
A business can protect itself legally by ensuring compliance with all relevant laws and regulations, maintaining accurate records, and seeking legal advice when necessary.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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