prime costs only includes direct cost like direct material and direct labor.
No
Prime cost = direct materials + direct laborwhile conversion cost = direct labor + factory overhead( which includes indirect materials, indirect labor and other indirect costs
Only direct material and direct labor is part of prime cost while overheads are part of conversion cost so indirect labor is part of overheads so automatically part of conversion cost and not prime cost.
Direct material and direct labor are the parts of prime cost while indirect labor is part of manufacturing overhead and manufacturing overhead is a part of conversion cost that's why indirect labor is not part of prime cost because it is that type of labor which is not directly identifiable with units production that;s why cannot charge directly to production units.
Indirect labor is that kind of labor which is not directly involved in making of unit of product that's why it is not a direct labor and that's why it is not prime cost of unit of product and that's why it is shown in overheads
Indirect cost rate is equal to Indirect Cost Pool divided by Indirect Cost Allocation Base.
Direct labor and direct materials are the components of prime cost so no other cost is part of prime cost and hence variable overheads also not included in prime cost.
Indirect cost rate is equal to Indirect Cost Pool divided by Indirect Cost Allocation Base.
The formula for the indirect cost rate is: [ \text{Indirect Cost Rate} = \frac{\text{Total Indirect Costs}}{\text{Total Direct Costs}} \times 100 ] This ratio expresses the indirect costs as a percentage of direct costs, allowing organizations to allocate indirect expenses to specific projects or departments effectively. Indirect costs typically include overhead expenses like utilities, administrative salaries, and rent.
The formula for calculating indirect cost rates is: Indirect Cost Rate = (Total Indirect Costs / Total Direct Costs) x 100%. This rate expresses the proportion of indirect costs in relation to direct costs, allowing organizations to allocate indirect expenses appropriately across various projects or departments. Indirect costs typically include overhead expenses such as administrative salaries, utilities, and facilities maintenance.
The prime cost of a product is the direct cost which includes the materials and labor needed. This does not include the fixed costs attached to the material.
If indirect labor change with the change of units of product then indirect labor is a variable cost. If change in the quantity of units has no impact on indirect labor cost then it is a fixed cost.