Question

If beginning work in process inventory is $160,000, ending work in process inventory is $180,000, cost of goods manufactured is $500,000, and direct materials used are $130,000, what are the conversion costs?

a. $340,000
b. $390,000
c. $320,000
d. $210,000

Answer 1

The conversion costs are $390,000, calculated by subtracting the beginning work in process inventory and direct materials used, and then adding the ending work in process inventory to the cost of goods manufactured.

Step-by-step explanation:

To determine the conversion costs, we need to understand that conversion costs are the sum of labor and overhead costs. They are costs incurred to convert raw materials into finished goods. The cost of goods manufactured (COGM) is calculated as the beginning work in process inventory plus the direct materials used, direct labor, manufacturing overhead, and any other costs, minus the ending work in process inventory.

Using the formula:

COGM = Beginning Work in Process Inventory + Direct Materials Used + Direct Labor + Manufacturing Overhead - Ending Work in Process Inventory

Plugging in the values provided:

$500,000 = $160,000 + $130,000 + Direct Labor + Manufacturing Overhead - $180,000

Rearranging the formula:

Direct Labor + Manufacturing Overhead = $500,000 - $160,000 - $130,000 + $180,000

Direct Labor + Manufacturing Overhead = $390,000

Therefore, the conversion costs are $390,000.