Prime cost is a term used in accounting and refers to the total direct costs of production, including raw materials and labor. It is a way of measuring the total cost of the production inputs needed to create a given output. Prime costs are important because they represent the expenses that are under direct control and are also referred to as "controllable expenses". By analyzing prime costs, a company can set prices that yield desired profits.

The formula for prime cost is Cost of Goods Sold (CoGS) + Total Labor Cost. Prime costs include food and beverage inventory, labor, payroll taxes, workers compensation, medical insurance, employee benefits, and disposables. Prime costs do not show the total costs of production, which may be misleading if there are high indirect costs.

It is important to note that prime cost only considers direct costs and does not capture the total cost of production. A company likely incurs several other expenses that would not be included in the calculation of the prime cost, such as manager salaries or expenses for additional supplies needed to keep the factory running.

Examples of prime costs include direct materials, direct labor, and salesperson commission. Prime costs do not include indirect costs, such as allocated factory overhead or administrative costs.

In summary, prime cost is a way of measuring the total direct costs of production, including raw materials and labor. It is important for businesses to analyze their prime costs to set prices that yield desired profits. However, it is important to note that prime costs do not capture the total cost of production and may be misleading if there are high indirect costs.