ECONOMICS

Detailed explanation-1: -Prime costs are defined as the expenditures directly related to creating finished products, while conversion costs are the expenses incurred when turning raw materials into a product. Prime costs include direct material and direct labor costs. Conversion costs include direct labor and overhead expenses.

Detailed explanation-2: -A prime cost is the total direct costs of production, including raw materials and labor. Indirect costs, such as utilities, manager salaries, and delivery costs, are not included in prime costs. Businesses need to calculate the prime cost of each product manufactured to ensure they are generating a profit.

Detailed explanation-3: -Explanation: Prime Cost: It consists of the costs of direct materials that go into the product, the costs of direct labor and direct expenses. It is also known as direct cost or first cost.

Detailed explanation-4: -What are Conversion Costs? Conversion costs are those production costs required to convert raw materials into completed products. The concept is used in cost accounting to derive the value of ending inventory, which is then reported in the balance sheet.