ECONOMICS

Detailed explanation-1: -Conversion cost is the sum of direct labor and manufacturing overhead costs incurred to turn raw materials into a finished product. Conversion costs are used in the generation of a manufacturing firm’s income statement and balance sheet if process costing is used as well as assist in product pricing.

Detailed explanation-2: -Conversions costs are one of the components of the total manufacturing cost. It is computed by obtaining the sum of the direct labor costs, the variable manufacturing overhead, and the fixed manufacturing overhead. These costs are being incurred so as to convert the raw materials into finished goods.

Detailed explanation-3: -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-4: -Conversion cost is the sum of direct labor plus manufacturing overhead costs. These are the costs required to turn (convert) a raw material into a finished product.

Detailed explanation-5: -The total conversion cost formula is: Conversion Costs = Direct Labor Costs + Manufacturing Overheads.