ECONOMICS

Detailed explanation-1: -Conversion costs is a term used in cost accounting that represents the combination of direct labor costs and manufacturing overhead costs. In other words, conversion costs are a manufacturer’s product or production costs other than the cost of a product’s direct materials.

Detailed explanation-2: -The combined costs of direct labor and factory overhead per equivalent unit will be called conversion cost per equivalent unit.

Detailed explanation-3: -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.

Detailed explanation-4: -Conversion costs include the manufacturing costs that are needed to convert direct materials into final products: direct labor costs and manufacturing overhead costs.

Detailed explanation-5: -Conversion cost gets its name because the costs that make up conversion cost are all the costs incurred to convert raw material into a finished good. These costs are direct labor and manufacturing overhead.