Final answer:
For a baking company, electricity expense is considered a conversion cost because it is part of the manufacturing overhead, necessary for transforming raw materials into finished products. Raw ingredients such as yeast, flour, and sugar are direct materials, not conversion costs.
Step-by-step explanation:
The conversion costs in a manufacturing setting are the costs incurred to convert raw materials into finished goods. Within a baking company, conversion costs would typically include direct labor and manufacturing overhead expenses. The electricity expense associated with running baking ovens and other equipment would be considered a conversion cost as it is part of the manufacturing overhead, which consists of the indirect costs necessary to transform the raw materials into finished products.
Therefore, ingredients like yeast, flour, and sugar are not considered conversion costs as they are direct materials used in the product itself, not costs associated in transforming these materials into baked goods.