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Asked Feb 24, 2019
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Whats the difference between prime and conversion costs?

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Expert Answer

Step 1

Prime cost: It is the cost which is incurred for manufacturing a product. It includes direct materials and direct labor.

 

Conversion cost: It is the cost which is incurred for converting the raw materials into finished goods. It includes direct labor and factory overheads.

Step 2

For example: A factory is incurred the following costs in the current period.

 

Direct material: $2,000; direct labor: $700; factory overheads: ...

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