A more thorough explanation:

Definition: The actual cost of goods or services, including the cost of materials and labor.

Example: A bakery produces a cake that costs $10 in ingredients and $5 in labor. The prime cost of the cake is $15.

This example illustrates that the prime cost is the direct cost of producing a product or service. It does not include indirect costs such as rent or utilities. By calculating the prime cost, a business can determine the minimum price they need to charge to cover their expenses and make a profit.