Food cost was $2,500 and labor cost was $3,500, with total sales of $12,000. What is the prime cost percentage?

Food cost was $2,500 and labor cost was $3,500, with total sales of $12,000. What is the prime cost percentage?

• A. 50%
• B. 45%
• C. 55%
• D. 40%

Answer: (A)

Prime cost percentage shows how much of sales is tied up in the direct costs of producing meals—food and direct labor. To find it, add food cost and labor cost to get the prime cost, then divide by total sales. Here, prime cost is 2,500 + 3,500 = 6,000. Divide by total sales of 12,000: 6,000 / 12,000 = 0.50, or 50%. So half of each dollar in sales goes to prime costs, leaving the rest to cover other expenses and profit. If the prime cost were different, the percentage would change accordingly (for example, 5,400 prime cost would be 45%).

Prime cost percentage shows how much of sales is tied up in the direct costs of producing meals—food and direct labor. To find it, add food cost and labor cost to get the prime cost, then divide by total sales. Here, prime cost is 2,500 + 3,500 = 6,000. Divide by total sales of 12,000: 6,000 / 12,000 = 0.50, or 50%. So half of each dollar in sales goes to prime costs, leaving the rest to cover other expenses and profit. If the prime cost were different, the percentage would change accordingly (for example, 5,400 prime cost would be 45%).