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What is the difference between prime costs and conversion costs?

Author:
Harold Averkamp, CPA, MBA

Cost Categories of a Manufactured Product

Prime costs and conversion costs pertain to the three cost categories of a manufactured product:

Definition of Prime Costs

Prime costs are the combination of the two direct product costs:

  • Direct materials costs
  • Direct labor costs

Definition of Conversion Costs

Conversion costs are the two categories of manufacturing costs that are needed to convert the direct materials into products:

  • Direct labor costs
  • Manufacturing overhead costs

As you can see, the direct labor costs are considered to be both a prime cost and a conversion cost.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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