<P> Variable costs are costs that change in proportion to the good or service that a business produces . Variable costs are also the sum of marginal costs over all units produced . They can also be considered normal costs . Fixed costs and variable costs make up the two components of total cost . Direct costs, however, are costs that can easily be associated with a particular cost object . However, not all variable costs are direct costs . For example, variable manufacturing overhead costs are variable costs that are indirect costs, not direct costs . Variable costs are sometimes called unit - level costs as they vary with the number of units produced . </P> <P> Direct labor and overhead are often called conversion cost, while direct material and direct labor are often referred to as prime cost . </P> <P> In marketing, it is necessary to know how costs divide between variable and fixed . This distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns . In a survey of nearly 200 senior marketing managers, 60 percent responded that they found the "variable and fixed costs" metric very useful . </P>

Explain the difference between prime cost and conversion cost
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