Difference between Conversion Cost and Prime Cost
Basis |
Conversion Cost |
Prime Cost |
---|---|---|
Definition |
Conversion Cost is the total expense needed to turn raw materials into finished goods. | Prime Cost is the total of direct materials and direct labor costs. |
Components |
Conversion Costs include direct labor and manufacturing overhead costs. | Prime Cost comprises only direct materials and direct labor costs. |
Formula |
To find conversion costs, add up direct labor and manufacturing overhead expenses. | Prime Cost is calculated by summing up direct materials and direct labor costs. |
Focus of Calculation |
Conversion Cost calculation considers all costs tied to the production process. | Prime Cost computation focuses specifically on the core costs involved in creating a product. |
Comprehensive View |
Conversion Cost gives a broader view by accounting for both labor and overhead costs. | Prime Cost provides a more specific view, concentrating on direct labor and material costs. |