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Both are correct.
Coversion cost = Direct Labour + Manufacturing Overhead
Prime cost = Direct Labour + Direct Material
SOURCE:
http://highered.mcgraw-hill.com/sites/0070980829/student_view0/glossary.html
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∙ 14y ago
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How prime cost is different from conversion cost and Manufacturing Costs?
Prime cost basically is the cost of direct labor and cost of direct material; whereas conversion costs is Overhead cost and direct labor cost.
Direct labor cost is a part of?
Direct labor cost is part of prime cost as well as it is part of conversion cost as well.
Is indirect labor part of prime cost?
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.
Does prime cost plus conversion cost equal the cost of manufacturing?
Total Manufacturing Cost = Direct Material + Direct Labor + Factory Overheads Prime Cost = Direct material + Direct Labor Conversion Cost = Direct Labor + Factory Overhead So yes prime cost and conversion cost is equal to total manufacturing cost
What is differanciate prime cost from conversion cost?
The fact that cost which requires to convert raw material into finished goods like direct labor and overhead differentiate the prime cost from conversion cost which includes raw material and labor.
How prime cost is different from conversion cost and Manufacturing Costs?
Prime cost basically is the cost of direct labor and cost of direct material; whereas conversion costs is Overhead cost and direct labor cost.
Prime cost and conversion cost?
Prime cost = direct materials + direct laborwhile conversion cost = direct labor + factory overhead( which includes indirect materials, indirect labor and other indirect costs
Direct labor cost is a part of?
Direct labor cost is part of prime cost as well as it is part of conversion cost as well.
Is indirect labor part of prime cost?
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.
What is the common element between prime cost and conversion cost?
Direct Labor.
Manufacturing overhead combined with direct labor forms prime costs?
Formula for prime cost = direct material + direct laborFormula for conversion cost = direct labor + manufacturing overheads
Prime cost and conversion cost share what common element of total cost?
direct labor
Does prime cost plus conversion cost equal the cost of manufacturing?
Total Manufacturing Cost = Direct Material + Direct Labor + Factory Overheads Prime Cost = Direct material + Direct Labor Conversion Cost = Direct Labor + Factory Overhead So yes prime cost and conversion cost is equal to total manufacturing cost
What is differanciate prime cost from conversion cost?
The fact that cost which requires to convert raw material into finished goods like direct labor and overhead differentiate the prime cost from conversion cost which includes raw material and labor.
What is the difference between prime cost and conversion cost?
Prime cost and conversion cost are two essential concepts in cost accounting, and understanding the difference between them is crucial for managing a business's finances effectively. Prime Cost: Imagine you're baking a cake from scratch. The prime cost would be the direct cost of the basic ingredients needed to make the cake. In a business context, prime cost includes the direct costs associated with producing a product. These costs are directly tied to the materials and labor used in manufacturing or creating the product. Prime costs typically consist of: Direct Materials: These are the raw materials or components directly used in the production process. In the cake analogy, it's the flour, sugar, eggs, and other ingredients. Direct Labor: This is the cost of the workforce directly involved in producing the product. In the cake example, it would be the baker's wages. Conversion Cost: Now, think about what it takes to turn those basic cake ingredients into a delicious cake. Conversion cost represents the additional expenses required to convert those raw materials into a finished product. In a business setting, conversion cost encompasses: Direct Labor: This includes not only the workers directly involved in production but also their wages and benefits. Factory Overhead: This category covers all other production costs that aren't direct materials or direct labor. It includes expenses like utilities for the factory, equipment maintenance, and depreciation of manufacturing machinery. In summary, the main difference between prime cost and conversion cost is that prime cost includes only the direct costs directly linked to the production of a product (raw materials and direct labor), while conversion cost includes the direct labor along with the additional manufacturing costs required to convert those raw materials into the finished product (direct labor and factory overhead). So, if you were managing a bakery, the flour, sugar, and eggs used in your cakes would be part of the prime cost, while the wages of your bakers and the costs of running your bakery (oven electricity, cake molds, etc.) would be included in the conversion cost. Understanding these costs helps a business analyze its expenses and make informed decisions about pricing and production efficiency.
Is indirect labor a part of 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.
Abel companys manufacturing overhead is 20 percent of its total conversion costs If direct labor is 38000 and if direct material are 47000 the manufacturing overhead is?
Manufacturing Overheads = 20% of Conversion CostTotal Conversion Cost = ?Total Conversion Cost = Direct Labor + Manufacturing Overheads100% = 80% + 20%Total Conversion Cost = direct labor * 100/80Direct labor = 38000Total Conversion Cost = 38000 * 100/80Total Conversion Cost = 47500Manufacturing Cost = Total Conversion Cost - Direct LaborManufacturing Cost = 47500 - 38000Manufactruring Cost = 9500
