Prime cost
In one sentenceThe sum of a product's direct materials and direct labor, meaning its cost before manufacturing overhead is added.
Simply put
It is the part you can calculate accurately for each product: the materials that went into it and the work the workers did on it directly.
Adding manufacturing overhead to it gives you the full production cost per unit.
Worked example
A furniture workshop makes a chair that needs direct materials of 30 SAR and direct labor of 15 SAR, and it is charged 10 SAR of overhead.
Direct materials30 SAR
Direct labor15 SAR
For comparison: full production cost = 45 + 10 overhead55 SAR
Prime cost = 30 + 1545 SAR
Formula: Direct materials + Direct labor
Don't confuse it with
Direct costsDirect costs is a broader concept covering any cost traced to the product, while prime cost is limited to direct materials and direct labor.