ECONOMICS

Detailed explanation-1: -FALSE. Conversion costs are direct labor and manufacturing overhead costs.

Detailed explanation-2: -Thus, conversion costs are all manufacturing costs except for the cost of raw materials.

Detailed explanation-3: -Conversion cost includes, cost of raw material, direct labour and factory overheads. This is the process of converting the raw material in to finished goods.

Detailed explanation-4: -The statement d. The cost of direct labor combined with manufacturing overhead correctly describes the term “conversion costs.” Conversion costs include the direct labor and the manufacturing overhead needed to “convert” the direct materials into a finished product.

Detailed explanation-5: -Comparing Prime Costs and Conversion Costs Thus, the essential difference is that prime costs do not include the factory overhead costs that are included in conversion costs, while conversion costs do not include the direct material costs that are included in prime costs.