Prime cost (straight line) and diminishing value methods. In most cases, you can choose to use either of two alternative methods for calculating depreciation: The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/Prime-cost-(straight-line)-and-diminishing-value-methods/
The difference is you multiply the factor times the raw item food cost plus the direct labor associated with producing that item Prime Cost Factor = 100/desired Prime Cost % Prime Cost Method = Prime Cost Factor * (Raw item food cost + direct labor cost) You can use the same short cut for the Prime Cost method that you can for the Factor Method.
https://www.coursehero.com/file/pgb307/Prime-Cost-The-2nd-menu-pricing-method-is-Prime-Cost-It-is-very-similar-to-the/
1 The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.  The diminishing value method assumes that the value of a depreciating asset decreases more in the early years of its effective life.
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/Prime-cost-(straight-line)-and-diminishing-value-methods/
The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life, while the diminishing value method assumes that the value of a depreciating asset decreases more in the early years of its effective life.
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/Prime-cost-(straight-line)-and-diminishing-value-methods/
Of course, the specific expenses included in the prime cost calculation vary depending on the item being produced. For example, assume a business manufactures 10 bed frames and incurs the following expenses: $5,000 for lumber, $1,500 for hardware and 50 hours of labor for product assembly at a rate of $15 per hour. Only the costs of raw materials and direct labor are used in the prime cost formula. In the above example, the raw materials are the lumber and hardware used for assembly. The total cost of raw materials is $5,000 + $1,500, or $6,500. The total cost of labor is $15 * 50, or $750.
http://www.investopedia.com/ask/answers/052615/what-prime-cost-formula.asp
Prime cost (straight line) method. Under the prime cost method (also known as the straight line method), you claim a fixed amount each year based on the following formula: Asset’s cost × (days held/365) × (100%/asset’s effective life)
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/Prime-cost-(straight-line)-and-diminishing-value-methods/
The Prime Cost method is not as popular as the Factor Method because it involves more work (you must time and cost the direct labor). Both methods are not that accurate since you are estimating the desired % so that all of your other expenses and profit are covered....
https://www.coursehero.com/file/pgb307/Prime-Cost-The-2nd-menu-pricing-method-is-Prime-Cost-It-is-very-similar-to-the/
Unformatted text preview: Prime Cost The 2nd menu pricing method is Prime Cost. It is very similar to the Factor Method but direct labor cost is added to the raw item food cost. The Prime Cost method is a more accurate pricing method because different recipes can have the same ingredients, and thus the same raw item food cost, and yet require significantly different amounts of labor.
https://www.coursehero.com/file/pgb307/Prime-Cost-The-2nd-menu-pricing-method-is-Prime-Cost-It-is-very-similar-to-the/
Prime cost (straight line) method. If the asset costs $80,000 (after excluding GST if entitled to claim it) and has an effective life of five years, you can claim 20% of its cost, or $16,000, in each of the five years.
https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/General-depreciation-rules---capital-allowances/Prime-cost-(straight-line)-and-diminishing-value-methods/
Prime Cost = Raw Materials + Direct Labor. The prime cost of a single bed frame is ($6,500 + $750) / 10, or $72.50. In order to generate a profit, the company must sell each frame for more than $72.50.
http://www.investopedia.com/ask/answers/052615/what-prime-cost-formula.asp
prime cost method
A method to find prime cost is a summation of raw materials and direct labor. Prime Cost is equal to Raw Materials plus Direct Labor. Prime Cost method equals to Raw Materials plus Direct Labor.