Prime cost refers to a manufactured product's costs, which are calculated to ensure

the best profit margin for a company. The prime cost calculates the use of raw
materials and direct labor, but does not factor in indirect manufacturing expenses
such as the cost for a company logo or gas used to deliver the product.

Prime cost is the combination of a manufactured product's costs of direct materials

and direct labor. In other words, prime cost refers to the direct production costs.
Indirect manufacturing costs are not part of prime cost.

The difference between prime costs and conversion costs involves the three cost
categories associated with manufacturing a product:
direct materials
direct labor
and manufacturing overhead (also known as factory overhead, production overhead,
burden, indirect product costs, etc.)
Prime costs are the two direct product costs. (The indirect product cost
manufacturing overhead is excluded.). Hence, the prime costs are:
direct materials costs
direct labor costs
Conversion costs are the manufacturing costs needed to convert the direct materials
into products. Hence, conversion costs exclude the cost of direct materials and
consist of the following:
direct labor costs
manufacturing overhead costs
As you can see, the direct labor costs are both a prime cost and a conversion cost.

Expenditure that are directly identified with the production of finished goods
including direct material and direct labour

AccountingCoach PRO contains a cost and managerial exam with 520 questions and
answers to assist you in a better understanding of manufacturing costs.