 When considering prime costs and conversion costs, we are looking at the cost of production. We're looking at production costs as opposed to period costs. When considering production costs, we always think about direct materials, direct labor, and overhead. They should always come to mind when we think about production. Anytime we think about inventory, whether we make it or whether it be made someplace else, its costs include the direct materials, direct labor overhead. We here talking about a manufacturing company are going to apply these three items at this point in time because we are the individuals of the company that is manufacturing the product. So remember, it's not just the materials within the product, that's one component, but the other component is going to be the labor that we're going to put into it. The cost of the labor, the wages we pay are not going to be a period experience, but be part of the cost of inventory to be capitalized, be put on the balance sheet until we sell the inventory, put on the balance sheet as a piece of the inventory as an asset. And then the overhead, anything dealing with the factory, anything that deals with the factory will be part of the inventory. If we have depreciation on the factory, if we have maintenance on the factory, if we've got supervisors within the factory that are paid salary, all that stuff is going to be in the inventory in some way they're going to be part of the product. So anytime we think of inventory, we have direct materials, direct labor and overhead. Now when we consider these in terms of prime costs and conversion costs, there's a bit of an overlap here because the prime costs represent what is going to be directly within the product. Therefore the prime costs include the direct materials and the direct labor. Now the direct labor, we can't really see within the product of course, like the direct materials, but it's so closely associated to the product. It's so essential to the production that we're going to call those the prime costs. Now that's going to differentiate from conversion costs, although there are some overlaps. The conversion costs are the costs that we're going to have that will be used to convert the raw material to the finished goods, the cost that means that we're doing something, we're doing something to the raw material. So in the example of a guitar, the direct material would be something like the wood, the conversion would be anything we do to that in order to make it into a guitar. So conversion costs are then going to include as well direct labor and the overhead because the direct labor is going to be part of us processing it. And the overhead is going to be included anything that's in the factory because of course we need that factory in order to convert.