In Fisher LTD, direct materials are $12000, direct labor $15000 and manufacturing overhead is $9000

The prime costs are all directly associated costs with manufacture, so in the example of Fisher LTD, the costs needed to make the product are direct materials and direct labor:

• Direct Materials + Direct Labor = Prime Cost
• $12,000 + $15,000 = $27,000

The conversion costs are all costs associated with adding value to raw material, so we exclude raw material to find conversion costs:

• Direct Labor + Manufacturing Overhead = Conversion Cost
• $15,000 + $9,000 = $24,0000

That means our prime costs are $27,000 and the conversion costs are $24,000.