ECONOMICS

Detailed explanation-1: -Prime costs are the combination of the two direct product costs: direct materials costs and direct labor costs. Conversion costs include the manufacturing costs that are needed to convert direct materials into final products: direct labor costs and manufacturing overhead costs.

Detailed explanation-2: -Conversion costs are the total of direct labor and factory overhead costs. They are combined because it is the labor and overhead together that convert the raw material into the finished product.

Detailed explanation-3: -Conversion cost includes, cost of raw material, direct labour and factory overheads. This is the process of converting the raw material in to finished goods.

Detailed explanation-4: -Comparing Prime Costs and Conversion Costs Thus, the essential difference is that prime costs do not include the factory overhead costs that are included in conversion costs, while conversion costs do not include the direct material costs that are included in prime costs.

Detailed explanation-5: -Types of Conversion Costs Examples of costs that may be considered conversion costs are: Direct labor and related benefits and payroll taxes. Equipment depreciation. Equipment maintenance.