 Hello in this lecture we will define prime costs according to fundamental accounting principles while the 22nd edition the definition of prime costs is expenditures directly identified with the production of finished goods including direct materials and direct labor support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it so when we're thinking prime costs we're basically thinking those things directly applicable to the finished goods often thinking of a manufacturing company those items being direct materials and direct labor so we have direct materials could be something like the plastic that would go into something or the wood that would go into the product and we have the direct labor the labor that we can tie directly to either a job or a process cost system so we want to be able to tie these things out directly to the inventory within a production process within a manufacturing company those items that are not prime costs are going to be those that we cannot tie directly to the production process we might have indirect costs which are part of the inventory but which we can't tie directly to any particular job or process those things include things like the factory whether it be the rent or the depreciation on the factory a supervisors salary because the supervisor may be supervising many different jobs or many different product processes and therefore we're going to have to put these types of items things like glue small things into an account called overhead and then apply them out so we're not putting them directly to the inventory job process or process cost system we're going to put them indirectly by first putting them into overhead an overhead account then finding some way to apply that overhead to the particular jobs and the particular processes we could also have maintenance on the factory anything within the factory is going to be indirect and the prime costs are going to be those items such as such as the plastics such as the direct labor the direct materials and the direct labor