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 The prime cost is the cost of a particular product that the manufacturer incurs apart from any business overhead expenses.

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.