Conversion costs are A. direct materials plus direct labor. B. direct materials plus manufacturing overhead. C....

Conversion costs are

A. direct materials plus direct labor.

B. direct materials plus manufacturing overhead.

C. indirect materials plus indirect labor.

D. direct labor plus manufacturing overhead.

Expert Solution

The Correct Answer would be Option D - Direct Labor plus Manufacturing Overhead.

Conversion costs can be defined as those costs which are incurred to convert raw material into finished product. Labour is essential to any production process and they play a key role in production of finished product. They are involbed in manufacturing the products Manufacturing overhead is the indirect costs incurred in the factory to produce a product.

Therefore it can be said that Conversion Costs are Direct Labor plus Manufacturing Overhead.

Note - In options A and B given there is Direct Materials which will not form part of Conversion Cost as the defination of conversion costs specifically says that Conversion Costs are those cost that converts the raw materials into finished prodcut. Thus Direct material cost will not form part of Conversion Cost.

Indirect Material costs are a part of manufacturing overhead. However manufactuting overhead also includes Indirect labor and other costs such as utilities, insurance etc. Since other costs are not given in the option it will not complete the defination of manufacturing overhead. Thus option C is also incorrect.

ekkarill92 answered 1 year ago

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