The sum total of all costs that are direct in nature is termed as prime cost. The prime cost calculator is an online tool to perform such calculations with a single click. The other name for prime cost is flat cost or first cost. These costs serve as the basis for the allocation of various overheads that are not directly associated with a particular unit.
The formula for calculating prime cost includes the addition of all the costs, i.e., cost of direct materials, direct labor, and expenses directly attributable in nature to the goods produced.
To write the above in an equation form, consider the following equation:
Prime Cost = Direct Materials + Direct Wages + Direct Expenses
How to Calculate using Calculator?
The user need to enter the following details into the prime cost calculator for arriving at the prime cost of the product.
Number of Units
Enter the number of units produced.
Direct Material per Unit
Enter the cost of direct material per unit produced. If more than one type of raw material is used to produce a single unit, add the cost of both raw materials. Also, if more than one unit is used to produce a single unit, enter the total cost of the number of units used in such production.
Direct Wages per Unit
Enter the unit cost of direct labor. Similar to the cost of direct materials, the labor force employed in production may belong to different classes such as skilled, semi-skilled, or unskilled. Provide the total amount of wages paid for manufacturing one unit.
Direct Expenses per Unit
Apart from direct material and direct labor costs, there are certain other expenses that are directly attributable to the units manufactured. These expenses are known as direct expenses. Enter the amount of per-unit direct expense.
Let us take an example to illustrate the concept. Suppose a company produces 4,000 units a year. It uses 2 types of raw material (RM), that is, RM X and RM Y. it requires 2 units of RM X and 1 of RM Y. the cost of RM X is $2 per unit while the cost of RM Y is $3 per unit. Direct wages paid for producing 1 unit is $7. And, direct expenses amount to $5.5 per unit.
Cost of RM X for producing 1 unit of finished goods = $4 (i.e., $2*2 units)
Cost of RM Y for producing 1 unit of finished goods = $3 (i.e., $3*1 unit)
Total cost of direct material per unit = $7 ($4 + $3)
Direct wages per unit = $7
Direct expenses per unit = $5.5
Prime Cost = (4,000*$7) + (4,000*$7) + (4,000*$5.5) = $78,000
Prime Cost per Unit = Prime Cost/Number of Units = $78,000/4,000 = 19.5
We can simply calculate prime cost per unit by adding all the per unit cost, that is, direct material per unit, direct wages per unit and direct expenses per unit.
To know more about prime cost, please refer to our article – Prime Cost.