ECONOMICS

Detailed explanation-1: -Prime costs are all of the costs that are directly attributed to the production of each product. Prime costs are direct costs, meaning they include the costs of direct materials and direct labor involved in manufacturing an item. Companies use prime costs to price their products.

Detailed explanation-2: -Prime costs comprise a company’s direct material and direct labor costs. Businesses calculate prime costs when analyzing manufacturing expenses, efficiency, and profitability. Accountants break down product costs into three categories: direct material, direct labor, and manufacturing overhead.

Detailed explanation-3: -Prime costs can be calculated using the following formula: Prime cost = direct materials cost + direct labor cost.

Detailed explanation-4: -The labor cost per unit is obtained by multiplying the direct labor hourly rate by the time required to complete one unit of a product. For example, if the hourly rate is $16.75, and it takes 0.1 hours to manufacture one unit of a product, the direct labor cost per unit equals $1.68 ($16.75 x 0.1).

Detailed explanation-5: -Prime cost is the total of direct labor plus direct materials. Conversion cost is the sum of direct labor plus manufacturing overhead costs. These are the costs required to turn (convert) a raw material into a finished product.