Question

In the manufacture of 8,000 units of a product, direct materials cost incurred was $154,600, direct labor cost incurred was $84,000, and applied factory overhead was $45,500. What is the total conversion cost?

a. $129,500
b. $154,600
c. $284,100
d. $238,600

Answer 1

Total conversion cost is $129,500.

Step-by-step explanation:

Conversion cost includes all the expenses incurred when turning raw materials into finished goods, excluding the cost of materials.

It is the addition of direct labour cost and applied overhead expenses.

Conversion cost together with Prime cost are used to determine the efficiency of production. Prime cost is made up of direct materials and direct labour. Conversion cost is made up of direct labour and overheads. Conversion cost represents the cost applied on materials in order to produce a finished good.

Answer 2

a. $129,500

Step-by-step explanation:

Conversion costs includes all those costs which are used to convert the raw material into the finished goods. All the manufacturing costs excluding material costs are included in the conversion cost.

Total Conversion Cost is calculated as follow:

Direct Labor cost $84,000

Add: Applied Factory overheads $45,500

Total Conversion cost $129,500