What are Prime and Conversion Costs?

Prime and conversion costs concern the classification of direct material, labor, and overhead.

What is a Prime Cost?

Prime costs are generally direct material and direct labor that goes into the development and preparation of the materials used in the manufacturing process. It is generally all costs incurred that do not contribute to the conversion of direct materials into the final product.

What is a Conversion Cost?

Conversion costs are those cost associated with converting direct materials into a final product. So, conversion costs are generally made up of direct labor and manufacturing overhead.