LO 5.2What is the difference between prime costs and conversion costs?

Material cost + Labor cost are called 'Prime Costs'

Labor cost + Overhead cost are called 'Conversion Costs'

Explanation:

Prime cost is defined as material cost+Labor cost. All the material costs and labour costs are included in the definition of the prime cost.

Conversion cost is defined as Labor cost + overhead cost. All the costs related to labor and overhead are included in the definition of Conversion cost.