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Q:

# What is the prime cost formula?

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The formula for prime cost is the sum of the direct cost of materials, the direct cost of labor and the direct cost of expenses, according to BusinessDictionary.com. The prime cost is the cost of a particular product that the manufacturer incurs apart from any business overhead expenses.

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The prime cost does not include the price, running expenses and upkeep of the physical building, nor does it include salaries of all personnel in the business. The prime cost varies directly with the amount of the product produced. It is typically lower per item in mass-produced items and higher in items produced in limited numbers.

## Related Questions

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To calculate depreciation using the sum of the years' digits, divide the undepreciated useful life of the asset by the sum of the years' digits, and then multiply the result by the depreciable amount. If you know the useful life of the asset, the cost of the asset and its residual value after its useful life, the calculation takes about 10 minutes.

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The basic accounting formula is an equation that represents the relationship between assets, liabilities and an owner’s equity. This formula forms the building block or cornerstone for the double entry accounting system, and as is formulated as follows: Asset = Liability + Equity (Owner's Capital)

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Cost accounting is a type of managerial accounting that considers budgets and the cost to produce items. Managers use the results from cost accounting to make decisions that maximize profits while minimizing expenses, according to Reference.com.