Prime costs are direct materials and direct labor and they can always be traced to a specific cost object. A cost object is anything for which costs are accumulated for managerial purposes: a specific product, job, product line, a market or certain customers.
Conversion costs are direct labor and overhead. Overheads are not able to be traced to cost objects and must be applied to them.
Indirect costs are costs that are not able to be directly traced to a cost object. This is what makes them indirect costs.
Not all overhead costs can be traced to a cost object. For example, variable overhead needs to be applied to all of the units produced and is not able to be traced.
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