ECONOMICS

Detailed explanation-1: -Direct labor costs are the same as those used in prime cost calculations. Conversion costs are also used as a measure to gauge the efficiencies in production processes but take into account the overhead expenses left out of prime cost calculations.

Detailed explanation-2: -Definition of Conversion Costs Conversion costs are the total of direct labor and factory overhead costs. They are combined because it is the labor and overhead together that convert the raw material into the finished product.

Detailed explanation-3: -The total conversion cost formula is: Conversion Costs = Direct Labor Costs + Manufacturing Overheads.

Detailed explanation-4: -Conversion cost is the cost incurred by any manufacturing entity in converting its raw material into finished goods capable of being sold in the market. It usually includes the total value of labor cost and other applied overheads like factory overheads, administrative overheads, etc.