Should I be worried....

It seems a very strange thing to be called a prostitute by a friend. You seem to suspect it's true. If there's no other reason to suspect, I'd be more suspicious of the "friend". Ask the "friend" why he was so offensive about your cousin and what proof he has. For a young girl to flirt and hang out with boys a lot is normal and no proof of prostitution or any other kind of sexual activivty.
If you have serious reasons to suspect, then you need to act. You should find out as much as possible about where she's going, who she's seeing and what she's doing before confronting her.
If it seems to be true (don't be too quick to jump to conclusions) you'll have to risk upsetting her and confront her. You should probably then involve adult family members, though this will depend on what they are like and what your relationship with them is like.

No such thing as too nosy here. Ask her straight out what is going on and demand a straight answer.

If she gets an attitude, use force such as taking it to her parents, or just slapping her one!

Are you saying there was merit to the name calling?

Most kids in their early teen years start learning about words like the one mentioned, and they to use it as much as possible at first. Because they want to establish their own context for using the word.

So they'll insert the new word into as many conversations as possible to see how it fits.

And as far as name calling goes, I doubt I have to explain that dynamic. And this word is going to get used quite a bit in that context, you can count on that.

If you actually think your 12 year old cousin has committed an act of prostitution, that is another thing altogether. In that case, there must be some sort of hard evidence that indicates she's been involved in that sort of thing.

But if you're only going off her being a called a name, then it's harmless and I wouldn't put too much thought into it.

well sometimes these words get used but they don't literally mean what they say. Like you a slut, a hoe etc. even if they are not. BUT I would still find out what that mutual friend ment by it, a 12 year old shouldn't be called these names, shows she has been doing somethings she shouldn't be. I don't think she would tell you unless you guys are like close, so I think you should ask around and ask that mutual friend of yours more info about it, and try to not come off mad etc. that they called her that, just ask in a way that they would answer

Try to talk to your cousin. Don't ask her why did that guy call you a prostitute, but just get more involved in her life and see what's going on. I got called names in middle school because I had a lot of guy friends but it was innocent on my part, I was a bit more tomboyish and less girly. I say that to emphasize that just because someone called her a mean name does not mean she did anything to warrant it. Simply hanging around guys does not make her a slut. Also she's at that age where she is prob just getting into boys, she may have crushes and not be doing anything wrong but other people may just gossip and perceive it that way. Hopefully she isn't doing anything sexual so I wouldn't jump to that conclusion just yet.