In the example income statement, which two categories comprise the prime cost?

In the example income statement, which two categories comprise the prime cost?

• A. Labor costs and Other costs
• B. Revenues and Profit
• C. Food and beverage costs and Labor costs
• D. Food costs and Labor costs

Answer: (C)

Prime cost is the sum of the direct inputs used to produce and deliver menu items: the ingredients (food and beverages) and the labor to prepare and serve them. In the example income statement, the two categories that match this definition are food and beverage costs together with labor costs. These capture both the raw materials and the direct labor tied to making and serving the dishes. Revenues and profit aren’t costs, and overhead or “other costs” aren’t part of prime cost. Also, including only food costs would miss beverages, so pairing food and beverage costs with labor gives the complete prime cost.

Prime cost is the sum of the direct inputs used to produce and deliver menu items: the ingredients (food and beverages) and the labor to prepare and serve them. In the example income statement, the two categories that match this definition are food and beverage costs together with labor costs. These capture both the raw materials and the direct labor tied to making and serving the dishes. Revenues and profit aren’t costs, and overhead or “other costs” aren’t part of prime cost. Also, including only food costs would miss beverages, so pairing food and beverage costs with labor gives the complete prime cost.