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What is the difference between prime cost and conversion cost?

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Question added by Deleted user
Date Posted: 2013/06/20
Md Jiyaul Abdula
by Md Jiyaul Abdula , Senior Project Accountant , Gate City Trading and Contracting

Direct Material + Direct Labour + Direct Expenses = Prime Cost

Direct Labour + Production Overhead = conversion cost  

Example

DL500

overhead500

conversion Cost $1000/ Equivalent Unit5000=$0.2 Equivalent  cost per unit.

Frank Avitia
by Frank Avitia , Managing Director , AIS Investment Services

Prime Cost are a business's expenses for the materials and labor it uses in production.
Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
Conversion costs are those costs required to convert raw materials into finished goods that are ready for sale.
The concept is used in cost accounting to derive the value of ending inventory.
It can also be used to determine the incremental cost of creating a product, which could be useful for price setting purposes.

Khaled Abdelrehim ACCA DipIFR CMA
by Khaled Abdelrehim ACCA DipIFR CMA , Financial Analysis Assistant General Manager , Khalda Petroleum Company

prime cost = direct materials+direct labour

conversion cost = direct labour+factory overhead

MALIIK SOHAIL ABBAS
by MALIIK SOHAIL ABBAS , ACCOUNTS MANAGER , AL RAWDAH GREEN SWEET WATER

The difference between prime and conversion costs refers to the difference in the types of costs and what they are applied to. Prime costs are basically the cost of direct labor and direct materials. Conversion cost is the cost of direct labor cost and manufacturing overhead cost. The term conversion is used because direct labor and manufacturing overhead costs are incurred to convert materials into finished products.

قدرى abu taha
by قدرى abu taha , محاسب , حسن علام

prime cost equal direct material plus direct labor conversion assets equal direct labor plus factory overhead

Ervin Gallego
by Ervin Gallego , Accountant , Al Falak Electronic Equipment & Supplies Company

Prime Cost is the combination of direct materials cost and direct labor cost.
Prime is derive from primary which means primary cost which occurs in the start of the process so its called prime cost.
It is also called flat cost or basic cost.
Conversion Cost is the combination of direct labors cost and factory overheads cost.
Direct labor and FOH are the two costs which convert raw materials into finished goods therefore it is called conversion cost.

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