Refer to the following data. Direct material used $120,000 Selling costs $ 10,000 Indirect labour $...

Refer to the following data.

Direct material used	$120,000
Selling costs	$ 10,000
Indirect labour	$ 12,000
Administrative costs	$ 15,000
Depreciation on factory equipment	$ 65,000
Direct labour	$ 34,000
Overtime premiums paid	$ 12,000
Indirect materials	$ 25,000

The conversion costs are:

Select one:

a. $ 34,000.

b. $150,000.

c. $123,000.

d. $136,000.

e. $148,000.

Expert Solution

Correct option is e. $148000.

Conversion costs include all direct and indirect production cost , this are the cost incurre to convert raw material to Finished goods . Conversion cost include the total of direct labor and factory overhead costs and does not include Direct material . As both this cost ie labor and overhead together that convert the raw material into the finished product.

Calculation of Indirect cost .

Direct Labour
Durect labour + Overtime Premium	(34000+12000)	$46000
Factory Cost
Indirect labour		$12000
Depreciation on Factory equipment		$65000
Indirect material		$25000
Total conversion cost		$148000

1)Selling and Administration cost are the after conversion cost . This are the period cost that incurred when product become ready to sale. Hence will no form part of Product cost as this is not product cost it will not form part of conversion cost. This type of cost are know as Period cost.

2) Depreciation on equipment are product cost , as this are the amortisatiom of expense .As equipment is use for production of goods , it will be part of conversion cost.

ekkarill92 answered 1 year ago

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